INTM603060 - Transfer of assets abroad: Exemptions from charge: Avoidance purpose exemption - impact of failing the conditions

Effect of not accepting exemption provisions apply

If an individual has failed to satisfy HMRC that tax avoidance was not a purpose of the relevant transactions, then he will potentially be subject to the income charge or benefits charge, as appropriate.

If relevant transactions were initially accepted as not undertaken for a purpose of tax avoidance, but a subsequent transaction is for tax avoidance, then the effects which this has on the amount chargeable to tax will be dependent on when the relevant transactions took place.

Income charge

If all the relevant transactions were effected pre-5 December 2005, or all effected post-4 December 2005, and any of these transactions causes the exemption provisions not to apply, then the individual is to be subject to the income charge on the amount of the income of the person abroad for the tax year under consideration and subsequent years.

If one or more of the relevant transactions are pre-5 December 2005 transactions and one or more are post-4 December 2005 transactions, and a transaction dated pre-5 December 2005 causes the exemption provisions to cease to apply, the position will be as referred to in the previous paragraph.

However, there are special rules where the exemption provisions cease to apply as a result of a relevant transaction from post-4 December 2005 by reference to the provisions introduced in Finance Act 2006 (INTM602640).

These rules provide that any income arising before 5 December 2005 is not counted as income of the person abroad. The aim of this rule is to prevent the income charge provisions retrospectively charging to tax any income arising prior to 5 December 2005. Consequently, the amount of the income charge will be that income arising to the person abroad for the year of assessment in which the exemption provisions ceased to apply and subsequent years. In any case for which the relevant transaction is effected for a tax avoidance purpose in a year, the whole of the income for that year is subject to the income charge. There is no apportionment of income to and from the date of the relevant transaction.

Benefits charge

The amount of income of the person abroad for all years, including those years for which the exemption provisions apply, is to be taken into account in considering the amount of benefits received by an individual which are subject to the benefits charge.

Guidance as to the amounts of benefits which are chargeable to tax where the exemption provisions cease to apply can be found at INTM601760.