INTM600120 - Transfer of assets abroad: Introduction and background: General introduction

It is a basic principle of UK personal taxation that the UK charges tax on the personal income of its residents wherever in the world that income arises. Generally, income arising outside the UK to a person resident overseas will not be subject to income tax in this country.

Consequently, without specific provisions, income tax could easily be avoided by individuals who are UK resident if they arranged for income to accrue to a person resident abroad, whilst still being able to enjoy the benefit of this income. To prevent this, the transfer of assets abroad legislation was originally enacted in 1936.

The transfer of assets abroad legislation can now be found in sections 714 to 751 of the Income Tax Act 2007. It is anti-avoidance legislation aimed at preventing individuals who are UK resident from avoiding a liability to income tax by means of a transfer of assets which results in income becoming payable to a person abroad, whilst the individual who made the transfer either has

  • the power to enjoy the income arising (ITA07/S720), or
  • received, or is entitled to receive, a capital sum which is connected with the transfer (ITA07/S727).

The transfer of assets abroad legislation can also apply where an individual who is UK resident receives a benefit provided out of assets available for the purpose as a result of a transfer of assets (ITA07/S731).

There are exemptions from the charge to income tax under the transfer of assets legislation where an individual satisfies an officer of HMRC that specific conditions are met (ITA07/S736-742A). In broad terms, there will be no charge if the individual can demonstrate:

  • the avoidance of a liability to tax was not the purpose or one of the purposes of the relevant transactions, or
  • the transactions were genuine commercial transactions that were not designed for the purpose of tax avoidance, or
  • the transactions were genuine when all the relevant circumstances are taken into account and imposing a charge on the income would be a restriction of European Union treaty freedoms.

There are sections in the history of the legislation dealing with some older statute which may still have some relevance to existing scenarios: for example, ordinary residence, up to the introduction of the Statutory Residence Test (SRT).