ANNEX 1:: MINOR CHANGES IN THE LAW MADE BY THE BILL This change is in taxpayers’ favour in principle. But it is expected to have no practical effect as it is in line with current practice. Change 112: Transfer of assets abroad: transferors not subject to charge where benefit received: section 732
This change clarifies the exclusion from liability to income tax under section 740 of ICTA (transfer of assets abroad: charge where benefit received) for those who are liable to income tax under section 739 of ICTA (transfer of assets abroad: charge where power to enjoy income or where capital sum received) on deemed income in respect of the same transfer. The change makes it clear that this exclusion extends to those who would be liable under section 739 apart from falling within the exception in section 743(3) for non-domiciled individuals taxed on the remittance basis.
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 deems the income of the person abroad to be the taxable income of the individual if the individual has power to enjoy the income of the person abroad or receives a capital sum.
Under sections 831 and 832 of ITTOIA 2005, persons who are domiciled outside the United Kingdom can make a claim only to be subject to income tax in the United Kingdom on the relevant foreign income which is received in the United Kingdom (and not on their worldwide relevant foreign income).
Section 743(3) of ICTA makes a corresponding exception from section 739 of that Act for individuals who are domiciled outside the United Kingdom. An individual is not chargeable on deemed income under section 739 if that individual would not have been chargeable in respect of the actual income because of the individual’s domicile.
Section 740 of ICTA deems individuals to receive taxable income if they receive benefits provided out of assets available as a result of transfers of the kind envisaged in section 739 and are not “liable to tax under section 739 by reference to the transfer”. This raises the question whether, by preventing a non-UK domiciled individual transferor from being chargeable under section 739, section 743(3) of ICTA exposes that individual to potential liability under section 740.
It is HMRC’s practice not to assess under section 740 a non-UK domiciled individual who transfers assets but is outside the charge to tax under section 739 by virtue of the provisions of section 743(3). But it is arguable that the wording of section 740 would permit a charge under section 740 on a non-UK domiciled transferor in these circumstances. Section 732 of this Act gives the current practice a clear statutory basis.
Where a non-UK domiciled individual transfers assets but is not chargeable to tax under section 739 owing to section 743(3), there is no bar in HMRC’s view on the application of section 740 to others who did not themselves make the transfer but were beneficiaries of it. HMRC interpret section 732 in the same way.