INTM600480 - Transfer of assets abroad: General conditions: Husbands, wives and civil partners

Although sub-section ITA07/S714(4) extends the meaning of an individual to include spouses or civil partners, there should be no automatic presumption that extends to a surviving spouse such as a widow or widower.

The tax charge is a year-by-year one, and for there to be a tax charge for a particular year the necessary conditions must be met in relation to that year. Thus, whether a surviving spouse or civil partner continues to be subject to charge, or becomes chargeable following the death of their partner, will depend upon the particular circumstances.

For example, in the case of Vestey v CIR (31 TC 1), in looking at whether an individual had power to enjoy income in the relevant tax year, the court considered a power of appointment that only provided for potential benefit of his widow as not meeting the condition of accruing to the benefit of the individual or, by extension, his wife. In the context Lord Morton of Henryton said, “‘wife’ does not include ‘widow’ and that this power of appointment is held by Lord Vestey only for the benefit or possible benefit of his widow”.

In the same case, on the same issue, after acknowledging the contemporary income tax rule that incomes of husband and wife are in the general case treated as one, Lord Reid went on to say:

But there is no obvious reason why a benefit to a settlor’s widow should be treated as a benefit to him; he can never enjoy it directly or indirectly. It is of great importance to a husband that his wife should be provided for – but the benefit to the husband from making such a provision is of an entirely different kind from the benefit which he can enjoy from a provision to his wife while he is alive.

Whether an individual who is a widow or widower is chargeable will depend on the particular facts. This can perhaps best be seen by taking scenarios from each extreme of the spectrum.

At one end of the spectrum, take the example of a married couple: during their lifetime the husband makes a transfer of assets that results in income becoming payable to an offshore structure. He has the power to enjoy this income at a time when he is UK resident and the conditions for exemption are not met. In theory, during their lifetimes either or both could potentially be charged under the transfer of assets income charge on the full income. However, in line with the practice described at INTM600460, HMRC’s approach would normally be to charge tax on the individual who has the power to enjoy the income, being here the husband. If the wife were to die and the husband remained in the same situation in relation to the income, a charge under the transfer of assets income charge would continue.

At the other end of the spectrum, if following the death of the husband, the widow - by virtue of her late husband’s will - acquires the power to enjoy the income of the offshore structure it may not be possible to continue a transfer of assets income charge on her. However, she may become chargeable under the benefits charge if she were to receive benefits from the offshore structure.