A UK company decides to award a bonus to its managing director
in recognition of services provided during the year ended 30 April
2003. On 30 June 2003, the company arranges to purchase a trust
created in the Isle of Man into which a third party has settled
£100,000. The company is assigned the beneficial interest in
the trust on payment of £101,500 (£100,000 plus 1.5%
commission to the supplier). The trust deed stipulates that the
trust will cease 9 days after it was created (i.e. on 9 July 2003).
On 1 July 2003, the company awards the bonus to the director
in the form of the reversionary interest in the offshore trust
(RIOT). On 9 July the trust ceases and the director receives
£100,000.
The director has received an asset worth £100,000 and was
not required to make any contribution to the cost. The money's
worth of the RIOT is chargeable to tax as employment income under
Part 2 ITEPA 2003 and is therefore PAYE income for Part 11 ITEPA
2003.
Under Section 702(2)(b)(iii) ITEPA 2003 anything that is
likely (without anything being done by the employee) to give rise
to a right enabling a person to obtain an amount or total amount of
money that is likely to be similar to the expense incurred in the
provision of the asset is a readily convertible asset (see
EIM11907). Consequently the employer is
required to operate PAYE on £100,000 at the time of the award
on 1 July 2003.
