Income Tax Act 2007

Charge where benefit received

731 Charge to tax on income treated as arising under section 732

(1) Income tax is charged on income treated as arising to an individual under section 732 (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.

(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 736 to 742 (exemptions where no tax avoidance purpose or genuine commercial transaction).

732 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 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 720 or 727 by reference to the transfer and would not be so liable if the effect of sections 726 and 730 were ignored, and

(e) the individual is not liable to income tax on the amount or value of the benefit (apart from section 731).

(2) Income is treated as arising to the individual for income tax purposes for any tax year for which section 733 provides that income arises.

(3) Also see that section for the amount of income treated as arising for any such tax year.

733 Income charged under section 731

(1) To find the amount (if any) of the income treated as arising under section 732(2) for any tax year in respect of benefits provided as mentioned in section 732(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 732 has applied.

  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 732(2) for earlier tax years as a result of the relevant transfer or associated operations.

  The result is “the total untaxed benefits”.

• Step 3

  Identify the amount of any income which—

  (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.

• 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”.

• 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 section 743(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.

  The amount of the income treated as arising under section 732(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 734 (reduction in amount charged: previous capital gains tax charge).

(3) See also section 740(5) to (7) (which makes provision about relevant income and benefits where relevant transactions include both transactions before 5 December 2005 and transactions after 4 December 2005 and exemptions under this Chapter cease to apply).

734 Reduction in amount charged: previous capital gains tax charge

(1) This section applies if—

(a) benefits provided as mentioned in section 732(1)(c) are received in a tax year,

(b) for that tax year the whole or part of any benefits so provided is a capital payment to which section 87 or 89(2) of, or paragraph 8 of Schedule 4C to, TCGA 1992 applies (chargeable gains: gains attributed to beneficiaries),

(c) it is such a payment because the total untaxed benefits exceed the available relevant income (see Step 6 in section 733(1)) and so it is not treated as income arising to the individual under section 732(2), and

(d) because of that capital payment chargeable gains are treated as accruing to the individual in that or a subsequent tax year under any of the provisions referred to in paragraph (b).

(2) For any tax year after one in which such chargeable gains are so treated, the amount of income treated as arising to the individual under section 732(2) in respect of benefits provided as mentioned in section 732(1)(c) as a result of the transfer or operations in question is calculated as follows.

(3) The amount is calculated under section 733(1) as if the total untaxed benefits were reduced by the amount of those gains.

(4) In this section “the total untaxed benefits” and “the available relevant income” have the same meaning as in section 733(1) (see Steps 2 and 5).

735 Non-domiciled individuals

(1) This section applies if—

(a) apart from this section, an individual receiving a benefit would be chargeable to income tax under section 731 in respect of any income treated as arising to the individual (“the chargeable amount”), and

(b) conditions A to C are met.

(2) Condition A is that the individual is domiciled outside the United Kingdom.

(3) Condition B is that the benefit is not received in the United Kingdom.

(4) Condition C is that, if the individual had received any of the relevant income by reference to which the chargeable amount is determined under section 733, because of being domiciled outside the United Kingdom the individual would not have been chargeable to income tax in respect of it.

(5) If this section applies, the individual is not chargeable to income tax under section 731 on so much of the chargeable amount as is determined by reference to the relevant income to which condition C applies.

(6) Sections 833 and 834 of ITTOIA 2005 (income treated as remitted to the United Kingdom) apply for the purposes of this section as they would apply for the purposes of section 832 of that Act (remittance basis) if the benefit were relevant foreign income.