ANNEX 1:: MINOR CHANGES IN THE LAW MADE BY THE BILL This change is adverse to some taxpayers in principle. But it is expected to have no practical effect as it is in line with current practice. Change 111: Transfer of assets abroad: cessation of entitlement to receive capital sum: section 729
This change makes it clear that there is no liability under section 739(3) of ICTA (transfer of assets abroad: charge where capital sum receivable or received) if the taxpayer’s entitlement to receive a capital sum has ceased.
Section 739 of ICTA prevents individuals who are ordinarily resident in the United Kingdom from avoiding liability to income tax by means of transfers of assets as a result of which income becomes payable to persons who are non-UK resident or non-UK domiciled. Section 739(3) deems income to become the taxable income of the individual if the individual receives or is entitled to receive a capital sum.
Broadly speaking, any sum paid or payable by way of loan or repayment of a loan is a “capital sum” for this purpose, as is any other sum paid or payable otherwise than as income, if it is not paid or payable for full consideration in money or money’s worth. Section 739(3) does not deem the capital sum to be income; instead, it takes income which has become payable to persons abroad as a result of the transfer and deems that income to be the transferor’s.
But the wording of section 739(3) of ICTA leaves the timing of the charge rather unclear. It reads:
“Where, whether before or after any such transfer, such an individual receives or is entitled to receive any capital sum …”
Section 739(6) provides that income is not deemed to be the individual’s under section 739(3) for any tax year “by reason only of his having received a sum by way of loan if that sum has been wholly repaid before the beginning of that year”. Therefore income may be deemed to be the individual’s in other cases where there has been an actual receipt of a capital sum in a previous tax year. But section 739 makes no provision about whether section 739(3) imposes a charge if the individual was merely entitled to receive a capital sum in a previous tax year.
In practice, where entitlement to a capital sum has ceased HMRC do not pursue further liability under section 739(3).
Section 729 gives effect to this practice by providing that the individual must either receive or be entitled to receive a capital sum in the tax year or have received a capital sum in an earlier tax year.