INTM600860 - Transfer of assets abroad: The income charge: Power to enjoy - introduction

For there to be an income charge ‘such an individual’ (INTM600760) must have, for the tax year in question, the power to enjoy any income of a person abroad, either at that time or in the future, and that power to enjoy must come from the transfer of assets either alone or in conjunction with associated operations. When an individual has power to enjoy the income of the person abroad is set out in ITA07/S722.

The provisions go on to describe a number of circumstances in which an individual for the purpose of the income charge is considered to satisfy the conditions to have power to enjoy income. This page and the following pages will look at each of those tests, described in the current legislation at ITA07/S723 as Conditions A to E, separately.

The ‘power to enjoy’ conditions are very wide ranging, and in many instances the individual may have power to enjoy income under several (or indeed all) of the conditions. In determining whether an individual has power to enjoy income within the meaning of Conditions A to E, regard must be had to the substantial result and effect of the transfer and any associated operations. All benefits which may at any time accrue to the individual as a result of the transfer and any associated operations, irrespective of their nature or form and regardless as to whether the individual has legal or equitable rights in respect of the benefits, shall be taken into account.

This supplemental provision has the effect of enlarging the conditions confirming the very wide-ranging circumstances that result in an individual being considered to have the power to enjoy income. This point was made by Mr Justice Walton in his judgement in Vestey (54 TC 503 at page 553) in commenting on the provision that is now at ITA07/S722(3) and (4) when he says,

It therefore appears to me that the only effect which [what was then] subs (6) could possibly have as the law now stands is to enlarge - never to restrict – the circumstances under which the individual has power to enjoy income.

Where the power to enjoy condition is met, any income of a person abroad that the individual has power to enjoy is income that is deemed to be income of that individual for income tax purposes. However, it is not the case that

• the income which the individual has power to enjoy and
• the income that becomes payable to a person abroad

must be the income of the same foreign person.

It is possible for more than one individual to have power to enjoy income of a person abroad. When this occurs, the income that is deemed to be the income of each individual may depend to some extent on precisely what it is that the individual has power to enjoy in consequence of any transfer they have made (together with associated operations). In most cases any conflict will be resolved by the ‘just and reasonable basis’ provisions described at INTM602480.