INTM600020 - Transfer of assets abroad

Overview of ICTA88/S739

ICTA88/S739 applies to an individual who transfers assets, or who procures or is associated with a transfer by somebody else. ICTA88/S740 applies to an individual who has not personally transferred assets but who benefits from a transfer made by somebody else. See INTM600030 for an overview of Section 740.

The conditions for application of Section 739 are:

• There must be a transfer of assets by (or procured by) an individual
• As a result of the transfer (alone or in conjunction with associated operations), income becomes payable to a non-resident person.
• The transferor must have power to enjoy that income in some way, or receive/be entitled to receive a capital sum.
• The transferor must be ordinarily resident in the UK in the year of liability.

If all of these conditions are fulfilled, the income which becomes payable to the offshore person is deemed to be that of the individual who made the transfer, to the extent he has power to enjoy that income. There are special rules where the transferor is not domiciled in the UK.

Any disposal of assets made at any time by an individual to a non-resident company, non- resident trust or other person abroad is a transfer of assets (or may alternatively be an associated operation of another transfer) for the purposes of Section 739. The legislation may also apply where the transfer of assets is to a UK entity, if there are associated operations that result in income becoming payable to a non-resident.

For example the legislation may apply where an individual transfers cash to create a new non- resident trust, or subscribes for the share capital of an offshore company, or where an individual transfers assets such as shares or property to a new or existing non-resident trust or other person or company abroad. It can also apply where intangible assets are transferred; for example a UK individual may transfer his services to an offshore company. A transfer may be made by way of sale or purchase of assets, or by way of gift.

If the relevant conditions are satisfied, any income arising to a non-resident person can be taxed by this legislation, whether UK source income (dividends from a UK company, diverted UK trading expenses, etc.) or foreign source income (trading profits of a non-resident company, foreign dividends, other foreign investment income, etc.)

An individual may have power to enjoy the income arising to a non-resident as a shareholder of an overseas company, as a beneficiary of a non-resident trust, or by benefiting in some other way. The transferor does not have to actually receive any of the income at all. Although only ordinarily resident individuals can be taxed by Section 739, since 26 November 1996 it has not been necessary for the individual to have been ordinarily resident in the United Kingdom at the time of the transfer. So the legislation may apply where an individual transferred assets whilst resident abroad and later came to the UK.

Where a transfer of assets or any associated operations involve the creation of a non-resident trust or settlement, the settlor may be chargeable under the provisions of Chapters 1A or 1B of Part XV ICTA 1988 (see TSEM4010 onwards). If you discover the existence of a non-resident trust (i.e. a trust for which some or all of the trustees are non-resident) you should contact CNR to check if a file already exists. If CNR does not already know of the existence of the non-resident trust, they will open a file to monitor ongoing UK tax liabilities of the settlor, any beneficiaries and of the trustees.

Where the trustees of a non-resident trust or settlement realise capital gains, the settlor or beneficiaries may be chargeable to Capital Gains Tax under the provisions of TCGA92/S86 or S87, see CG38200 onwards. Cases involving the capital gains of non-resident trusts should be referred to the Centre for Non- Residents, Bootle, (see CG38225).