INTM602180 - Transfer of assets abroad: non-domiciled individuals: The benefits charge - relevant income and benefits relating to foreign deemed income
The benefits charge is effectively a cumulative charge potentially looking at relevant income and benefits over a period of time. When applying the provisions in ITA07/S735 it is necessary to have an ordering rule. This determines the amount that would otherwise be taxable in the year the potential charge arises that can be regarded as foreign deemed income. It calculates the ‘ring-fenced’ income to be charged to tax as and when it is remitted to the UK.
The provision is at ITA07/S735A and only applies to the operation of the rule described in INTM602160. In other words, it only applies for the purpose of ITA07/S735.
The approach that the provision takes is to look at all the items taken into account in arriving at the potential amount that would otherwise be chargeable under the benefits charge. It then lines up relevant income and benefits in tax year order on a first in first out basis taking each item separately. If there is more than one benefit received each would be taken into account in order, that is the earliest benefit first. In relation to income, the rule takes UK income first for each year and then foreign income of each year. If, for example, one item of foreign income arose on 30 September in a tax year and another item of foreign income arose on 31 December, they would be taken into account by reference to the September item first and then the December item.
If income arises over a period, it is treated for the purpose of this provision as arising immediately before the end of the period. For example, if business profits accrue over an accounting period to 31 December, for the purpose of this provision the income would be treated as arising on 31 December. Therefore, if in a tax year there was interest income arising on 30 September and business profits accruing over an accounting period to 31 December, for the purpose of this provision they would be placed in the order interest first and profits second.
An amount that is a potentially chargeable amount under the benefits charge is then regarded as foreign deemed income, if and to the extent that the relevant income to which it relates would be relevant foreign income if it were the individual’s as described in INTM602160. This example illustrates how this ordering works.
Example
| Year | Date | UK income | Foreign income | Benefits |
|---|---|---|---|---|
| 1 | 30 Sep | £500 | 0 | 0 |
| 1 | 31 Dec | 0 | £500 | 0 |
| 2 | 31 Dec | 0 | £1,000 | £750 |
| 3 | 30 Sep | 0 | £500 | 0 |
| 3 | 31 Dec | £500 | 0 | 0 |
| 4 | 30 Sep | 0 | £500 | 0 |
| 4 | 31 Dec | £500 | 0 | £750 |
There are potential transfer of assets benefits charges in
- Year 2 of £750
- Year 4 of £750
Year 2
£500 is charged under transfer of assets (matched with UK income).
£250 will be foreign deemed income and ring-fenced to be charged under Part 8 ITTOIA as and when there is an amount remitted to the UK.
Year 4
The whole £750 will be charged under transfer of assets (matched against £750 of the £1,000 UK income).
If the benefit in Year 4 was £1,500, then £1,000 would be charged under transfer of assets (matched against £1,000 of UK income) and £500 would be ring-fenced as foreign deemed income.