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Income Tax Bill


Income Tax Bill
Part 12 — Tax avoidance
Chapter 2 — Transfer of assets abroad

336

 

651     

Meaning of “person abroad” etc

(1)   

In this Chapter “person abroad” means a person who is resident or domiciled

outside the United Kingdom.

(2)   

For the purposes of this Chapter, the following persons are treated as resident

outside the United Kingdom—

5

(a)   

a UK resident body corporate that is incorporated outside the United

Kingdom,

(b)   

the person treated as neither UK resident nor ordinarily UK resident

under section 475(3) (trustees of settlements), and

(c)   

persons treated as non-UK resident under section 767(4) (personal

10

representatives).

652     

Meaning of “associated operation”

(1)   

In this Chapter “associated operation”, in relation to a transfer of assets, means

an operation of any kind effected by any person in relation to—

(a)   

any of the assets transferred,

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(b)   

any assets directly or indirectly representing any of the assets

transferred,

(c)   

the income arising from any assets within paragraph (a) or (b), or

(d)   

any assets directly or indirectly representing the accumulations of

income arising from any assets within paragraph (a) or (b).

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(2)   

It does not matter whether the operation is effected before, after or at the same

time as the transfer.

Charge where power to enjoy income

653     

Charge to tax on income treated as arising under section 654

(1)   

The charge under this section applies for the purpose of preventing the

25

avoiding of liability to income tax by individuals who are ordinarily UK

resident by means of relevant transfers.

(2)   

Income tax is charged on income treated as arising to such an individual under

section 654 (individuals with power to enjoy income as a result of relevant

transactions).

30

(3)   

Tax is charged under this section on the amount of income treated as arising in

the tax year.

(4)   

But see section 657 (special rules where benefit provided out of income of

person abroad).

(5)   

The person liable for any tax charged under this section is the individual to

35

whom the income is treated as arising.

(6)   

For rules about the reduction in the amount charged in some circumstances

and the availability of deductions and reliefs, see—

section 658 (reduction in amount charged where controlled foreign

company involved), and

40

section 679 (deductions and reliefs where individual charged under this

section or section 660).

 
 

Income Tax Bill
Part 12 — Tax avoidance
Chapter 2 — Transfer of assets abroad

337

 

(7)   

For exemptions from the charge under this section, see sections 669 to 675

(exemptions where no tax avoidance purpose or genuine commercial

transaction).

654     

Individuals with power to enjoy income as a result of relevant transactions

(1)   

Income is treated as arising to such an individual as is mentioned in section

5

653(1) in a tax year for income tax purposes if conditions A and B are met.

(2)   

Condition A is that the individual has power in the tax year to enjoy income of

a person abroad as a result of—

(a)   

a relevant transfer,

(b)   

one or more associated operations, or

10

(c)   

a relevant transfer and one or more associated operations.

(3)   

Condition B is that the income would be chargeable to income tax if it were the

individual’s and received by the individual in the United Kingdom.

(4)   

For the purposes of subsection (2), it does not matter whether the income may

be enjoyed immediately or only later.

15

(5)   

It does not matter for the purposes of this section—

(a)   

whether the income would be chargeable to income tax apart from

section 653,

(b)   

whether the individual is ordinarily UK resident at the time when the

relevant transfer is made, or

20

(c)   

whether the avoiding of liability to income tax is a purpose for which

the transfer is effected.

(6)   

For the circumstances in which an individual is treated as having the power to

enjoy income for the purposes of this section, see section 655.

655     

When an individual has power to enjoy income of person abroad

25

(1)   

For the purposes of section 654, an individual is treated as having power to

enjoy income of a person abroad if any of the enjoyment conditions are met.

(2)   

In subsection (1) “the enjoyment conditions” means conditions A to E as

specified in section 656.

(3)   

In determining whether an individual has power to enjoy income for the

30

purposes of section 654, regard must be had to the substantial result and effect

of all the relevant transactions.

(4)   

In making that determination all benefits which may at any time accrue to the

individual as a result of the transfer and any associated operations must be

taken into account, irrespective of—

35

(a)   

the nature or form of the benefits, or

(b)   

whether the individual has legal or equitable rights in respect of the

benefits.

656     

The enjoyment conditions

(1)   

Condition A is that the income is in fact so dealt with by any person as to be

40

calculated at some time to enure for the benefit of the individual, whether in

the form of income or not.

 
 

Income Tax Bill
Part 12 — Tax avoidance
Chapter 2 — Transfer of assets abroad

338

 

(2)   

Condition B is that the receipt or accrual of the income operates to increase the

value to the individual—

(a)   

of any assets the individual holds, or

(b)   

of any assets held for the individual’s benefit.

(3)   

Condition C is that the individual receives or is entitled to receive at any time

5

any benefit provided or to be provided out of the income or related money.

(4)   

In subsection (3) “related money” means money which is or will be available

for the purpose of providing the benefit as a result of the effect or successive

effects—

(a)   

on the income, and

10

(b)   

on any assets which directly or indirectly represent the income,

   

of the associated operations referred to in section 654(2).

(5)   

Condition D is that the individual may become entitled to the beneficial

enjoyment of the income if one or more powers are exercised or successively

exercised.

15

(6)   

For the purposes of subsection (5) it does not matter—

(a)   

who may exercise the powers, or

(b)   

whether they are exercisable with or without the consent of another

person.

(7)   

Condition E is that the individual is able in any manner to control directly or

20

indirectly the application of the income.

657     

Special rules where benefit provided out of income of person abroad

(1)   

This section applies if an individual has power to enjoy income of a person

abroad for the purposes of section 654 because of receiving any such benefit as

is referred to in section 656(3) (benefit provided out of income of person

25

abroad).

(2)   

Despite anything in section 653, the individual is liable to income tax under

that section for the tax year in which the benefit is received on the whole of the

amount or value of that benefit.

(3)   

But subsection (2) does not apply so far as it is shown that the benefit derives

30

directly or indirectly from income on which the individual has already been

charged to income tax for that tax year or a previous tax year.

658     

Reduction in amount charged where controlled foreign company involved

(1)   

This section applies if—

(a)   

an amount of the chargeable profits for an accounting period of a

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company (“the controlled foreign company”) is apportioned to one or

more UK resident companies under section 747(3) of ICTA (imputation

of chargeable profits and creditable tax of controlled foreign

companies),

(b)   

as a result of section 747(4) of that Act those companies are chargeable

40

in respect of the amount (“the chargeable amount”) of the chargeable

profits so apportioned to them, and

(c)   

apart from this section, the amount of income treated as arising to an

individual under section 654 for a tax year would be or include a sum

 
 

Income Tax Bill
Part 12 — Tax avoidance
Chapter 2 — Transfer of assets abroad

339

 

forming part of the controlled foreign company’s chargeable profits for

that accounting period.

(2)   

The amount of income so treated is reduced by—equation: cross[char[S],over[times[char[C],char[A]],times[char[C],char[P]]]]

   

where—

S is the sum forming part of the controlled foreign company’s chargeable

5

profits for that accounting period,

CA is the chargeable amount, and

CP is the controlled foreign company’s chargeable profits for that

accounting period.

(3)   

The following provisions of ICTA apply for the purposes of this section as they

10

apply for the purposes of Chapter 4 of Part 17 of that Act—

section 747(6) (interpretation, in relation to a non-UK resident company,

of references to chargeable profits for an accounting period and

profits), and

section 751(1) to (5A) (accounting periods).

15

659     

Non-domiciled individuals

(1)   

An individual is not chargeable to income tax under section 653 in respect of

any income treated as arising to the individual under section 654 if conditions

A and B are met.

(2)   

Condition A is that the individual is domiciled outside the United Kingdom.

20

(3)   

Condition B is that if the income had in fact been the individual’s income,

because of being so domiciled the individual would not have been chargeable

to income tax in respect of it.

Charge where capital sums received

660     

Charge to tax on income treated as arising under section 661

25

(1)   

The charge under this section applies for the purpose of preventing the

avoiding of liability to income tax by individuals who are ordinarily UK

resident by means of relevant transfers.

(2)   

Income tax is charged on income treated as arising to such an individual under

section 661 (individuals receiving capital sums as a result of relevant

30

transactions).

(3)   

Tax is charged under this section on the amount of income treated as arising in

the tax year.

(4)   

The person liable for any tax charged under this section is the individual to

whom the income is treated as arising.

35

 
 

Income Tax Bill
Part 12 — Tax avoidance
Chapter 2 — Transfer of assets abroad

340

 

(5)   

For exemptions from the charge under this section, see sections 669 to 675

(exemptions where no tax avoidance purpose or genuine commercial

transaction).

(6)   

For rules about the availability of deductions and reliefs where income is

charged under this section, see section 679 (deductions and reliefs where

5

individual charged under section 653 or this section).

661     

Individuals receiving capital sums as a result of relevant transactions

(1)   

Income is treated as arising to such an individual as is referred to in section

660(1) in a tax year for income tax purposes if—

(a)   

income has become the income of a person abroad as a result of—

10

(i)   

a relevant transfer,

(ii)   

one or more associated operations, or

(iii)   

a relevant transfer and one or more associated operations, and

(b)   

the capital receipt conditions are met in respect of the individual in the

tax year (see section 662).

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(2)   

Section 658 (reduction in amount charged where controlled foreign company

involved) applies for determining the amount of income treated as arising

under subsection (1) as it applies for determining the amount so treated under

section 654(1).

(3)   

It does not matter for the purposes of this section—

20

(a)   

whether the income would be chargeable to income tax apart from

section 660,

(b)   

whether the individual is ordinarily UK resident at the time when the

relevant transfer abroad is made, or

(c)   

whether the avoiding of liability to income tax is a purpose for which

25

that transfer is effected.

662     

The capital receipt conditions

(1)   

For the purposes of section 661(1), the capital receipt conditions are met in

respect of the individual in a tax year (“the relevant year”) if—

(a)   

either—

30

(i)   

in the relevant year the individual receives or is entitled to

receive any capital sum, whether before or after the relevant

transfer, or

(ii)   

in any earlier tax year the individual has received any capital

sum, whether before or after the relevant transfer, and

35

(b)   

the payment of that sum is (or, in the case of an entitlement, would be)

in any way connected with any relevant transaction.

(2)   

But subsection (1)(a)(ii) does not apply merely because of the receipt of a sum

by way of loan if the loan is wholly repaid before the relevant year begins.

(3)   

In subsection (1) “capital sum” means—

40

(a)   

any sum paid or payable by way of loan or repayment of a loan, and

(b)   

any other sum paid or payable—

(i)   

otherwise than as income, and

(ii)   

not for full consideration in money or money’s worth.

 
 

Income Tax Bill
Part 12 — Tax avoidance
Chapter 2 — Transfer of assets abroad

341

 

(4)   

For the purposes of subsection (1), a sum is treated as a capital sum which the

individual (“A”) receives or is entitled to receive if another person receives or

is entitled to receive it—

(a)   

at A’s direction, or

(b)   

as a result of the assignment by A of A’s right to receive it.

5

663     

Non-domiciled individuals

(1)   

An individual is not chargeable to income tax under section 660 in respect of

any income treated as arising to the individual under section 661 if conditions

A and B are met.

(2)   

Condition A is that the individual is domiciled outside the United Kingdom.

10

(3)   

Condition B is that if the income had in fact been the individual’s income,

because of being so domiciled the individual would not have been chargeable

to income tax in respect of it.

Charge where benefit received

664     

Charge to tax on income treated as arising under section 665

15

(1)   

Income tax is charged on income treated as arising to an individual under

section 665 (non-transferors receiving a benefit as a result of relevant

transactions).

(2)   

Tax is charged under this section on the amount of income treated as arising

for the tax year.

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(3)   

The person liable for any tax charged under this section is the individual to

whom the income is treated as arising.

(4)   

For exemptions from the charge under this section, see sections 669 to 675

(exemptions where no tax avoidance purpose or genuine commercial

transaction).

25

665     

Non-transferors receiving a benefit as a result of relevant transactions

(1)   

This section applies if—

(a)   

a relevant transfer occurs,

(b)   

an individual who is ordinarily UK resident receives a benefit,

(c)   

the benefit is provided out of assets which are available for the purpose

30

as a result of—

(i)   

the transfer, or

(ii)   

one or more associated operations,

(d)   

the individual is not liable to income tax under section 653 or 660 by

reference to the transfer and would not be so liable if the effect of

35

sections 659 and 663 were ignored, and

(e)   

the individual is not liable to income tax on the amount or value of the

benefit (apart from section 664).

(2)   

Income is treated as arising to the individual for income tax purposes for any

tax year for which section 666 provides that income arises.

40

 
 

Income Tax Bill
Part 12 — Tax avoidance
Chapter 2 — Transfer of assets abroad

342

 

(3)   

Also see that section for the amount of income treated as arising for any such

tax year.

666     

Income charged under section 664

(1)   

To find the amount (if any) of the income treated as arising under section 665(2)

for any tax year in respect of benefits provided as mentioned in section

5

665(1)(c) take the following steps.

   

   

Step 1

   

Identify the amount or value of such benefits received by the individual in the

tax year and in any earlier tax years in which section 665 has applied.

10

   

The sum of those amounts and values is “the total benefits”.

   

   

Step 2

   

Deduct from the total benefits the total amount of income treated as arising to

the individual under section 665(2) for earlier tax years as a result of the

15

relevant transfer or associated operations.

   

The result is “the total untaxed benefits”.

   

   

Step 3

   

Identify the amount of any income which—

20

(a)   

arises in the tax year to a person abroad, and

(b)   

as a result of the relevant transfer or associated operations can be used

directly or indirectly for providing a benefit for the individual.

   

That amount is “the relevant income of the tax year” in relation to the

individual and the tax year.

25

   

   

Step 4

   

Add together the relevant income of the tax year and the relevant income of

earlier tax years in relation to the individual (identified as mentioned in Step 3).

   

The sum of those amounts is “total relevant income”.

30

   

   

Step 5

   

Deduct from total relevant income—

(a)   

the amount deducted at Step 2, and

(b)   

any other amount which may not be taken into account because of

35

section 676(1) and (2) (no duplication of charges).

   

The result is “the available relevant income”.

   

   

Step 6

   

Compare the total untaxed benefits and the available relevant income.

40

   

The amount of the income treated as arising under section 665(2) for any tax

year is the total untaxed benefits unless the available relevant income is lower.

   

If the available relevant income is lower, it is the amount of income treated as

so arising.

(2)   

Subsection (1) is subject to section 667 (reduction in amount charged: previous

45

capital gains tax charge).

 
 

 
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