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HMRC internal manual

Corporate Finance Manual

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HM Revenue & Customs
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Other tax rules on corporate debt: transfers of income streams: company transferors: transfer of underlying asset: rights under agreement for annual payment

Company transferors: transfer of underlying asset: rights under agreement for annual payments

Transfer of all rights under an agreement for annual payments

CTA10/S752(3) contains an exception to the requirement that the underlying asset is not transferred. If the asset consists of all the rights under an agreement for annual payments then such an agreement is indistinguishable from a right to relevant receipts. So it is appropriate to treat the outright transfer of the agreement in the same way as a transfer of the right to relevant receipts. The transfer of all rights under an agreement for annual payments was previously taxed as income under ICTA88/S775A, which is repealed at FA09/SCH25/PARA8(1)(b).

This rule applies only where the income that is transferred constitutes annual payments in the hands of the transferor. Where the transferor carries on a trade and the income stream would not have been pure income profit in his hands, S752(3) does not apply.

Example

Example 2 at CFM77030 describes the transfer of the right to licence fees from the holder of the licence, C Ltd, a trading company, to an unconnected company, E Ltd. If E Ltd does not carry on a trade then the fees are annual payments in its hands; they represent pure income profit.

If E Ltd then transfers the right to these annual payment to a third company, G Ltd, this may be the transfer of all rights under an agreement for annual payments.

S752(3) makes it clear that, despite the fact that the underlying asset consists of all rights under an agreement for annual payments and this is what E Ltd transfers to G Ltd, the provisions of S753 apply.