INTM602120 - Transfer of assets abroad: Non-domiciled individuals: The benefits charge - the position up to 5 April 2005

For non-UK domicile status to have any effect upon the benefits charge, two conditions must be met:

• the benefit received that triggers the potential charge must not be received in the UK
• the relevant income taken into account must be such that, if the individual had received it, they would not, by reason of being non-UK domiciled alone, have been chargeable to tax in respect of it (ICTA88/S740(5))

The only circumstances in which an individual ordinarily resident in the UK would not have been chargeable to tax in respect of income if received by them, on the basis of domicile status alone, would have been if the income were foreign source income not received in the UK.

In other words, it is income which, if received by the individual, would have been charged to tax under Cases IV and V of Schedule D on the basis of sums received in the UK, described in ICTA88/S65(5)).

Where the conditions are met, the individual is not chargeable under the benefits charge by reference to so much of the relevant income as satisfies the second condition (ICTA88/S740(5)). This can be illustrated by some straightforward examples:

Example 1

An ordinarily resident individual receives a benefit of £750 outside the UK from an offshore structure in which income of £1000 arises. The income comprises £500 UK source and £500 foreign source income not received in the UK. It is agreed that the provisions for a charge under ICTA88/S740 are met, and the potential charge is £750. However, as part of the relevant income is foreign income not received in the UK, that amount is excluded from the comparison of relevant income and benefits. The maximum charge for the year is therefore £500 (lower of the benefits received or relevant income after exclusion).

Example 2

As Example 1, but the benefit is £400 received outside the UK. In this case the charge for the year is on £400 (being the lower of the benefits received or the relevant income after exclusion).

Example 3

As Example 1, but £200 in respect of the foreign income is received in the UK. In this example only £300 of the relevant income can be said to derive from income that would not have been chargeable on the basis of domicile alone, and so only £300 of the £1000 relevant income is excluded, leaving £700. The charge is therefore £700 (being the lower of the benefits received or relevant income after exclusion).

Example 4

As Example 1, but in a later year £200 is received in the UK. Here the charge for the year is £500 as for Example 1. There is nothing chargeable in the later year as the basic conditions for a charge do not exist.

Example 5

As Example 1, but in a later year there is further relevant income of £100, which is all foreign income not received in the UK. In that same year a sum of £200 in respect of past income is received in the UK.

In the first year there is a charge of £500 as in Example 1. A benefit received of £250 is rolled forward as it has not been matched with relevant income. As there is relevant income in the later year a potential charge arises. The relevant income is now £1100 of which only £400 can be excluded on the basis of domicile. £500 has already been matched to benefits in an earlier year leaving £200 to compare with the benefit of £250. The charge for this later year is thus £200 (being the lower of the benefits received or relevant income after exclusions).

Note

In these examples, if the benefit had been received in the UK there would be no potential exclusion based on domicile.

Broadly, in considering what relevant income may be excluded similar considerations apply for what is regarded as ‘received in the UK’, as would apply for the purpose of old Cases IV and V of Schedule D in ICTA88/S65(5)-(9), including the special provisions there relating to UK-linked loans.