INTM602220 - Transfer of assets abroad: Non-domiciled individuals: The benefits charge - relevant income and benefits relating to foreign deemed income - example
Example
An individual who is resident, but not domiciled, in the UK has received cash benefits from an offshore structure in circumstances where the conditions for the transfer of assets provisions to apply are met. The remittance basis of taxation applies for each year.
| Year | Date arises | UK income | Foreign income | Benefits received | Benefits received in UK |
|---|---|---|---|---|---|
| 1 | 30 Sep | £500 | 0 | 0 | 0 |
| 1 | 31 Mar | 0 | £800 | £1,000 | 0 |
| 2 | 31 Mar | £100 | £1,000 | £1,400 | 0 |
| 3 | 31 Mar | £500 | £500 | 0 | 0 |
| 4 | 30 Sep | £200 | 0 | £1,000 | 0 |
| 4 | 31 Mar | 0 | £500 | 0 | 0 |
| 5 | 30 Sep | £500 | £100 | £600 | £600 |
| 5 | 31 Mar | 0 | £400 | 0 | 0 |
Year 1
The potential benefits charge is £1000: being the lesser of
- £1,300 relevant income, and
- £1,000 benefits received (INTM601740).
As the conditions for ITA07/S735 to apply are met, consider whether any of the potential charge is foreign deemed income. The principles in ITA07/S735A are used for this purpose (INTM602200).
First match the £1,000 with the UK income of £500. As this income cannot be relevant foreign income then £500 cannot be foreign deemed income and thus is charged under the transfer of assets benefits charge.
The remaining benefit is then matched with the foreign income of £800. This income would be relevant foreign income if it was the individual’s, and thus £500 of the deemed amount is foreign deemed income. This is treated as relevant foreign income and becomes potentially chargeable under Part 8 ITTOIA.
There is a balance of £300 relevant income that remains unmatched.
Where any amount is remitted to the UK during that or any subsequent year which is a remittance for Chapter A1, Part 14 ITA 2007 (the Remittance Basis), then part or all the ring-fenced amount may be charged under Part 8 ITTOIA in the year of remittance, subject as appropriate to the rules on remittances from mixed funds (see RDRM35200 onwards).
The total taxable amount for the year under transfer of assets benefits charge is therefore £500.
Year 2
The potential benefits charge is £1,400: being the lesser of
- the total relevant income £2,400 and
- the total benefits £2,400 less £1,000 already charged in Year 1.
Calculate how much of the total potential charge can be regarded as foreign deemed income applying ITA07/S735A. The potential chargeable amount is in effect matched with
- £300 of foreign income from Year 1 (this gives foreign deemed income of £300 chargeable under Part 8 ITTOIA)
- £100 UK income of Year 2 (as this income cannot be relevant foreign income, this £100 amount remains chargeable under the transfer of assets benefits charge)
- the foreign income of Year 2 of £1,000 (as this would be relevant foreign income if it were the individual’s, this amount can be regarded as foreign deemed income and so chargeable under Part 8 ITTOIA)
The result is that of the potential charge of £1,400:
- £100 is charged under the transfer of assets benefits charge, and
- £1,300 is ring-fenced and treated as relevant foreign income chargeable under Part 8 ITTTOIA.
The total charge under the transfer of assets benefits charge is therefore £100.
Where any amount is remitted to the UK during that or any subsequent year which is a remittance for Chapter A1, Part 14 ITA 2007 (the Remittance Basis), then part or all of the ring-fenced amount may be charged under Part 8 ITTOIA in the year of remittance, subject as appropriate to the rules on remittances from mixed funds (see RDRM35200 onwards).
Year 3
Although there is further relevant income in this year, there are no unmatched benefits so there can be no potential charge under the transfer of assets benefits charge. Consideration of ITA07/S735 is not applicable.
Year 4
The potential charge is £1,000: being the lesser of
- the total relevant income in Years 1 to 4 of £4,100, and
- the total benefits of £3,400 in Years 1 to 4 less £2,400 already charged in Year 1 (£1,000) and Year 2 (£1,400).
Work out the deemed foreign income applying ITA07/S735A.
The potential chargeable amount is in effect matched with:
- the UK relevant income £500 from Year 3
- the foreign income of £500 from Year 3.
The total amount charged under the transfer of assets benefits charge is therefore £500.
£500 is ring-fenced as foreign deemed income and treated as relevant foreign income.
Where any amount is remitted to the UK during that or any subsequent year which is a remittance for Chapter A1, Part 14 ITA 2007 (the Remittance Basis), then part or all the ring-fenced amount may be charged under Part 8 ITTOIA in the year of remittance, subject as appropriate to the rules on remittances from mixed funds (see RDRM35200 onwards).
There is £700 of unmatched relevant income to take forward, of which £200 is UK income and £500 is foreign income
Year 5
The potential charge is £600: being the lesser of
- the total relevant income in Years 1 to 5 of £5,100, and
- the total benefits £4,000 in Years 1 to 5 less £3,400 already charged in Year 1 (£1,000), Year 2 (£1,400) and Year 4 (£1,000).
Work out the deemed foreign income applying Section 735A.
The potential chargeable amount is in effect matched with
- the £200 UK relevant income from Year 4
- £400 of the foreign relevant income from Year 4.
The total amount charged under the transfer of assets benefits charge is therefore £200. £400 is ring-fenced as foreign deemed income and treated as relevant foreign income.
Where any amount is remitted to the UK during that or any subsequent year which is a remittance for Chapter A1, Part 14 ITA 2007 (the Remittance Basis), then part or all the ring-fenced amount may be charged under Part 8 ITTOIA in the year of remittance, subject as appropriate to the rules on remittances from mixed funds (see RDRM35200 onwards).
As the benefit was received in the UK a minimum of the ring-fenced amount of this year will be charged under Part 8 ITTOIA, and consideration would need to be given to whether there are further untaxed amounts of ring-fenced income that would be charged for this year applying the relevant remittance basis rules.
There is £1,100 of unmatched relevant income to take forward.