INTM601480 - Transfer of assets abroad: The benefits charge: General conditions

The main difference between the benefits charge and the income charges is the swap of ‘receives a benefit’ in place of ‘power to enjoy income’ or ‘entitlement to capital sums’.

There is however one further important difference from the income charge to consider before looking at the essential conditions required for the operation of the benefits charge. In the benefits charge there is nothing similar to the ‘preamble’ to the income charge (INTM600700). In other words, there is nothing directly indicating a legislative purpose ‘of preventing the avoiding of liability to income tax’.

However, any potential charge is subject to an exemption test. Therefore, when deciding whether there is a charge, it will be necessary to examine the purpose of the transactions that have resulted in the potential application of the benefits charge. More is said about this in the section on the exemption (INTM602600 onwards).

The essential conditions which are required for the operation of the benefits charge may, in broad terms, be summarised as follows:

• there is a relevant transfer (INTM600220)
• an individual who for the years up to and including 2012-2013 is ordinarily resident in the UK, or for the years from 2013-2014 an individual who is resident in the UK, receives a benefit (INTM601680)
• the benefit is provided out of assets which are available for the purpose as a result of the transfer or one or more associated operations; these need not be the same associated operations as any included in a ‘relevant transfer’ (INTM601660)
• the individual is not liable to an ‘income charge’ (INTM600640 and INTM600660) by reference to the transfer or, if the individual is not UK domiciled, would not be liable to the ‘income charge’ if any effect on that charge of his non-domicile status is ignored
• the individual is not liable to income tax on the amount or value of the benefit apart from through the benefits charge

Where the conditions for charge are met, the charge is on an amount of income treated as arising to that individual. That amount is determined from a comparison over a period of time of benefits (INTM601580) and ‘relevant income’ (INTM601700). It is neither a charge on a ‘benefit’ nor a charge on the income of the person abroad, even though it may be calculated by reference to both. The calculation of the amount that is treated as income is described at INTM601720.

Where the benefit received by the individual has come to that individual as a result of being the beneficiary of a non-resident trust, the benefit could potentially give rise to a chargeable capital gain (see INTM601520). A charge under the transfer of assets abroad benefits charge will normally fall to be considered first.

If the individual receiving a benefit is not UK domiciled for the year of charge, see INTM602100 for the effect this may have on any liability to income tax under the benefits charge.

Where more than one individual receives a benefit and is potentially subject to income tax under the benefits charge, application of Step 5 at INTM601740 should result in relevant income only being taken into account once for the purpose of the benefits charge.