SE11827 - Readily convertible assets: Example 7 - No trading arrangements – a property transfer

Since 6 April 1998 the definition of trading arrangements (see SE11811) should make it difficult for employers to say that an award of non-cash remuneration is outside PAYE.

However, some awards of assets are not readily convertible assets.

Example 7

• An employer company owns a property valued at £350,000
• on 18 October 1998 the employer awards the property to a director as a bonus – the bonus resolution makes no reference to the monetary value of the property (see SE12002)
• a few days later the director moves into the property as a private residence
• in December the director places the property on the market
• on 4 January 1999 the property is sold for £350,000.

Is the employer obliged to operate PAYE?

This depends on a close examination of the facts. There are two alternative reasons why PAYE could be due:

• if there were trading arrangements in place at the date of the award, or an understanding likely to lead to trading arrangements in future ; or
• if the transfer of the property satisfied a pre-existing entitlement to monetary amount – the Dunstall scenario (see SE12003).
• On 18 October if the director had already entered into an arrangement to re-sell the property, the property would be a readily convertible asset by virtue of Section 203F(2)(f) ICTA1988. Alternately if no arrangement existed on that date, but there was an understanding with a property developer that a future sale of the property was likely then the property would be a readily convertible asset by virtue of Section 203F(2)(g).
• In this case neither (f) or (g) applies – the director moved into the property in October with the intention of making it a main residence. There were no arrangements to sell, nor any understanding likely to lead to future arrangements and in November, when he decided to sell, this was as a result of circumstances unknown on 18 October.
• If the bonus resolution had established an entitlement to £350,000, then PAYE might be due on the basis of the decision in Dunstall. In this case the resolution did not mention a monetary amount so a Dunstall type argument is out of the question.

Consequently the employer is not obliged to operate PAYE on the property transfer.

For the income tax treatment of assets transferred to a director see SE21640 onwards.