INTM603660 - Transfer of assets abroad: Non-domiciled and deemed domiciled settlors from 6 April 2017: Valuation of benefits - making movable property available without transfer of ownership

The value of a benefit provided by making movable property available to an individual is covered by ITA07/S742D.For this purpose, movable property means any tangible movable property.

The value of the benefit provided in these circumstances where there is no transfer of the property is calculated using the following formula:

((CC x R x D) / Y) - T

where

CC is the capital cost of the movable property on the date when the property is first made available to the individual in the tax year

D is the number of days in the tax year on which the property is made available to the individual (the relevant period)

R is the official rate of interest for the relevant period (but see below for the calculation if there is a change of official rate during a tax year)

Y is the number of days in the year, and

T is the total of the amounts (if any) paid in the tax year by the individual to the person providing the benefit, in respect of the availability of the property or in respect of the repair, insurance, maintenance or storage of the property.

When considering if something is made available, this should be interpreted widely. It does not matter if the beneficiary chooses not to use the movable property. In cases where movable property is made available to more than one person at the same time, then apportionment of the benefit can be made by reference to use.

Example 1

Trustees make available a work of art to a beneficiary. The beneficiary holds the art for 300 days in the year and then loans the art to a friend for the remaining 65 days of the year. The onward loan is a decision of the beneficiary and so the work of art would be regarded as made available to the beneficiary for the 365 days in the year.

Example 2

Trustees make a yacht available to a beneficiary throughout a year. The yacht is only used by the beneficiary for two weeks in the year. Although only used for two weeks it is available for the full year and the benefit will be calculated on this basis.

Example 3

A yacht is made available to two beneficiaries A and B throughout the course of a year. A uses it for three weeks and B uses it for two weeks. A reasonable apportionment of the full years benefit would be 3/5 for A and 2/5 for B, based on each beneficiaries’ use.

When considering the capital cost of the movable property, this is the amount equal to the greater of

  • the total of the amount or value of the consideration given for the acquisition of the property by the person providing the benefit, and
  • its market value at the time of acquisition.

If, following the properties acquisition, there has been enhancement expenditure this is also brought into consideration.

Example 4

A painting which originally cost £30,000 in 2015 - 2016 is made available to an individual on 1 October 2018. On 1 December 2018 significant restoration work is undertaken on behalf of the trustees. This work costs £70,000.

The capital cost would be £30,000 for 2018 - 2019 and £100,000 for 2019 - 2020. This is because the expenditure on restoration will only feature in the CC amount from the start of the next tax year.

 

If the official rate of interest changes during the relevant period, then the R referred to in the formula above is the average official rate of interest for the period calculated as follows:

Step 1 – multiply each official rate of interest in force during the relevant period by the number of days in force

Step 2 – add together the products found in Step 1

Step 3 – divide the total found in Step 2 by the number of days in the relevant period

Example 5

Simon is the beneficiary of a non-resident trust.  The trust purchases a classic car in April 2019 for £50,000 and makes the car available for Simon’s use. In exchange for the use of the car Simon contributes £500 per year towards the insurance of the vehicle. For the purpose of the example, it is assumed that the official rate of interest is 2.5%.

The value of the benefit provided to Simon in 2019 - 2020 is as follows:

(50,000 x 2.5% x365) / 365 - 500 = £750

On 6 April 2020 the trustees spend £10,000 on the car to enhance its value. The value of the benefit in 2020 - 2021 is calculated as follows:

(60,000 x 2.5% x365) / 365 – 500 = £1,000

On 6 October 2021 the official rate of interest increases to 4%. The value of the benefit in 2021 - 2022 is calculated as follows:

(60,000 x (((2.5% x 183) + (4% x 182))/365) x 365) / 365 – 500 = £1,450

See INTM601400 onwards for details of the benefits charge prior to 6 April 2017.