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HMRC internal manual

International Manual

Transfer of assets abroad ('Benefits Charge')

The ‘Benefits Charge’ applies where assets have been transferred abroad and an ordinarily resident individual other than the transferor receives a benefit. Sections 721 and 727 apply to an individual who transfers assets, or who procures or is associated with a transfer by somebody else. See INTM600020 for an overview of Section 721 and 727, the ‘Income Charge’.

The broad conditions for application of Section 731 are:

  • There must be a transfer of assets.
  • As a result of the transfer (alone or in conjunction with associated operations) income becomes payable to a person abroad.
  • An individual, other than the transferor, receives a benefit, which is not otherwise chargeable to Income Tax, out of assets which are available for the purpose as a result of the transfer or one or more associated operations.
  • The recipient of the benefit must be ordinarily resident in the UK in the year of charge.

Section 731 taxes non-transferors on benefits received. It often applies to beneficiaries of non-resident trusts who receive benefits or capital payments from the trustees.

Benefits include payments of any kind as well as use of assets, for example cash (capital distributions), the use of property (e.g. occupation of a house), receipt of loans. Where the conditions are satisfied, the individual receiving the benefit is liable to tax on the amount or value of the benefit, although the charge is limited by the amount of past or future available ‘relevant income’ of the person abroad.

Relevant income is any income of any year arising (on or after 10 March 1981) to a person abroad as a result of a transfer of assets and any associated operations, which by virtue or in consequence of the transfer or associated operations can be used directly or indirectly to provide a benefit for the individual.

If the amount or value of the benefit exceeds the relevant income which has arisen up to the end of the year in which the benefit is received, the excess benefit is carried forward and can be taxed as income of future years as and when further relevant income arises.

There are special rules where the beneficiary is non-UK domiciled, and is a remittance basis user. Broadly, where the benefit which is matched with relevant income is received in the UK, it is taxable in full. However, where a benefit is not received in the UK, the legislation effectively gives the benefit of remittance basis.