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 113: Transfer of assets abroad: calculation of liability of non-transferors receiving benefit: section 733
This change clarifies how liability for income tax of non-transferors who receive a benefit is calculated, in particular where the benefit is less than the “relevant income” in relation to the individual receiving the benefit.
Section 740 of ICTA deems individuals to receive taxable income if (broadly speaking) they receive benefits as a result of transfers of assets as a result of which income becomes payable to persons resident or domiciled outside the United Kingdom and are not liable under section 739 of ICTA (liability of transferors) in respect of the transfers.
The general effect of section 740(1) to (3) of ICTA is:
	to tax non‑transferors on the amount or value of any such benefit received by them;
	only to tax such a benefit where, on or after 10 March 1981 (see section 740(7) of ICTA), income has arisen by the use of which the benefit could be provided (“relevant income”); and
	to tax the benefit whether it is conferred before or after the relevant income is actually available.
Relevant income is defined in relation to an individual in section 740(3) of ICTA. Briefly, it is any income arising to a person abroad which, as a result of the transfer of assets, “can directly or indirectly be used for providing a benefit for the individual”.
Under section 740(2)(a) of ICTA the amount to be charged in the tax year in which the benefit is received is found by comparing the amount or value of the benefit with “the relevant income of years of assessment up to and including the year of assessment in which the benefit is received”. Under section 740(2)(b) if the benefit exceeds the relevant income, then an amount equal to the relevant income is chargeable to income tax in the individual’s hands and the excess benefit is carried forward, compared with relevant income in the next and subsequent tax years and charged so far as it does not exceed that relevant income, until none is left to be carried forward.
Section 740 of ICTA leaves several questions unanswered.
It provides that if the relevant income exceeds the benefit, the amount or value of the benefit is chargeable to income tax in the individual’s hands, but does not make provision about the treatment of the excess of the relevant income over that amount.
Taken literally and in isolation, section 740(2)(a) suggests that whenever a benefit is received the amount or value of the benefit must be compared with all the relevant income that has arisen on or after 10 March 1981, regardless of whether the receipt of previous benefits has involved charges by reference to that income before. But relevant income is defined as income that can directly or indirectly be used to provide a benefit in the tax year, and section 744(1) and (2)(b) of ICTA prevent the same relevant income being taken into account more than once.
It is therefore considered that the surplus relevant income (if it continues to be available) has not been taken into account and so must be carried forward year by year until extinguished by a benefit or benefits. Section 733 of this Act gives effect to this view by providing for surplus relevant income to be carried forward.
This change has consequential effects on the way that section 740(6) of ICTA is rewritten in section 734 of this Act. That section provides for a reduction in the amount carried forward in respect of a benefit to a tax year after the year of receipt where the whole or part of the benefit is a capital payment that causes a capital gains tax charge to arise.