INTM604520 - Transfer of assets abroad: History of the legislation: History

1936

The first transfer of assets legislation was contained in the Finance Act of 1936 (section 18 and Schedule 2) which became law on 16 July 1936 and set a pattern that has largely remained unchanged since.

1938 - 1940

Between 1938 and 1940 there were minor amendments and supplementary provisions to strengthen the legislation. The changes included:

  • removing the word ‘mainly’ from the exemption clause as it had resulted in transactions with more than one purpose, which included avoidance, being able to escape charge; the change ensured that if one of the purposes of a transaction was tax avoidance then no exemption would be due;
  • strengthening the definition of ‘power to enjoy’ and adding a provision for a charge to arise on payment of or entitlement to capital sums
  • making clear that companies incorporated overseas are deemed to be persons resident or domiciled outside the UK for the purpose of these provisions even if they are regarded as UK resident for other tax purposes.

1952

The legislation was consolidated and incorporated into the Income Tax Act 1952 starting at section 412.

1969

The legislation then remained substantially unaltered until the Finance Act 1969. This Act introduced three changes to the provisions:

  • it revised the main charging provision for the income charge so that transfers and associated operations could both be looked at in considering if an individual had power to enjoy income of a person abroad;
  • it made changes to the terms that defined power to enjoy;
  • it limited the tax charge in certain circumstances where the power to enjoy was determined by the individual being in receipt of, or entitled to receive, benefits.

1970

The legislation was then consolidated into Income and Corporation Taxes Act 1970 (sections 478-481 inclusive).

1981

There was no further change until the Finance Act 1981. This introduced:

  • a second charging provision attaching liability to individuals who receive benefits as a result of a transfer made by someone else;
  • a provision preventing duplication of charges;
  • a ‘just and reasonable apportionment’ where more than one individual may be chargeable in relation to any amount;
  • new provisions in respect of non-UK domiciled individuals broadly putting them in a similar position to that which would have applied if they had received the income directly.

1988

The legislation was consolidated into Income and Corporation Taxes Act 1988 as sections 739-746 inclusive.

1997

The next change to the legislation came in Finance Act 1997. A new section was introduced which had the effect of removing any possible implication that the provisions only apply if the individual in question is ordinarily resident in the UK when the transfer of assets is made, or the avoiding of income tax is the purpose, or one of the purposes, for which the transfer is effected. The change applied to income arising on or after 26th November 1996.

2005 - 2006

When income tax law was re-written under the Tax Law Rewrite project to become the Income Tax (Trading and Other Income) Act 2005 (ITTOIA), involving changes to the charging provisions for income tax for most types of income, the charging provisions under transfer of assets were not at that time included in the rewrite. However, minor changes were made consequential upon revisions to the Income and Corporation Taxes Act 1988.

The Finance Act 2006 recast the test for exemption in cases not involving a tax avoidance purpose to make its meaning clearer. The new provisions applied to transfers and associated operations made on or after 5 December 2005. The Act also corrected a drafting error in the legislation concerning gains on certain life insurance contracts and confirmed that all relevant associated operations are to be taken into account in determining whether liability arises under the income or benefits charge.

2007

The legislation on transfer of assets was consolidated under the Tax Law Rewrite into Chapter 2, Part 13 of Income Tax Act (ITA) 2007. This guide is based on the law as it stands under ITA 2007 and matters arising from it are discussed where appropriate under the relevant section affected. Apart from one minor change the rewrite is said not to make changes to the law as it stood prior to April 2007.

2013

The Finance Act 2013 introduced the following changes to the transfer of assets legislation:

  • an additional exemption test applies to genuine transactions made on or after 6 April 2012 where European Union treaty freedoms are engaged;
  • from 6 April 2012 a company is a person abroad for the purposes of the legislation only if it is resident outside the UK - registration and domicile are no longer relevant;
  • an individual only has to be UK resident to be within the charge to tax rather than ordinarily resident (see INTM604540);
  • it is made clear that the individual is being charged to tax on an amount equal to the income received by the person abroad not the actual income of the person abroad;
  • a charge to tax under the legislation is prevented, where the individual is chargeable to tax on the income under another part of the Taxes Acts and the tax due on that income charge has been paid.

2017 - 2018

The Finance (No. 2) Act 2017 and the Finance Act 2018 amended the transfer of assets abroad legislation as a result of changes made to the treatment of non-UK domiciled and deemed domiciled individuals.

With effect from 6 April 2017, Finance (No. 2) Act 2017

  • removed certain income of overseas trust structures from the income charges and instead brought it within the scope of the benefits charge. The non-UK domiciled (or long-term resident deemed domiciled) settlor would be assessed on any benefits they receive from the trust structure to the extent that there is protected foreign-source income available in the structure to match against the benefit;
  • expanded the benefits charge on non-domiciled and deemed domiciled settlors to also cover benefits received by close members of the settlor’s family;
  • included provision for the protected treatment of such foreign-source income to be lost in certain circumstances. The result is that the foreign-source income of the trust structure reverts to being assessed under the transfer of assets income charges;
  • introduced rules setting out how the value of certain benefits was to be calculated: these rules relate to a payment by way of a loan, the making available of movable property without any transfer of ownership of the property, and the making available of land without any transfer of the ownership of the land concerned. Even though these valuation rules were included as part of the deemed domicile package of changes to the transfer of assets abroad legislation, they apply to the valuation of these benefits in all scenarios and are not restricted to the valuation of benefits arising in protected settlements only.

With effect from 6 April 2018, the Finance Act 2018 added provisions to target

  • a benefit provided out of an offshore structure to an individual who is not otherwise chargeable on the full amount of that benefit and
  • where some or all of that benefit directly or indirectly reaches another individual by way of an arrangement involving an onward gift.

Where appropriate to the context, more details of the various changes to the legislation can be found in the relevant sections of this manual.

2024

The Finance (No.2) Act 2024 introduced provisions that apply to relevant transfers undertaken by closely-held companies. With effect from 6 April 2024, the provisions extend the scope of the income charges to include income arising to a person abroad as a result of transfers undertaken by a closely-held company where these conditions are met in respect of individual shareholders:

  • the individual has a qualifying interest in the company
  • the individual is involved in the company’s decision making
  • the relevant participator did not object to the transfer made by the company
  • the relevant participator was aware of the transfer and that the consequence was to avoid UK tax.

The charges apply regardless of when the closely-held company made the transfer.

Where appropriate to the context, more details of the various changes to the legislation can be found in the relevant sections of this manual.