INTM600420 - Transfer of assets abroad: General conditions: Becomes payable

Whether there is income that becomes payable as a result of a relevant transaction is essentially a matter to be discerned from the facts.

In some circumstances the situation may be quite clear. For example, cash is transferred into an offshore company and then placed on deposit with interest being credited to the account in the company name. The interest credited to the account is clearly income that becomes payable.

For income tax purposes, if the interest accrued to the company it would not normally be considered to be income until it was paid or credited to the company (but see accrued income scheme charges – INTM601180). Apart from situations where the accrued income scheme applies, an accrual is unlikely, in most cases, to be income that becomes payable.

In the first scenario above, the company had become entitled to income when the interest was credited to its account; in the second scenario where interest accrued, no entitlement had arisen.

Being entitled to receive income will usually be considered as income that becomes payable for the purpose of this provision. For example, in Latilla v CIR (25 TC 107) a foreign company was entitled under a partnership agreement to a share of partnership profits and that entitlement was held to be income payable to the company. In commenting on ‘payable’ Lord Porter said “it was not a term of art”, and “he has at his disposal the means whereby he can ensure that his share reaches his hands” and that “in the circumstances it seems to me that the term accurately conveys the process by which income finds its way into the pocket of the individual”.

The finding of Hoffmann J in CIR v Brackett (60 TC 134) carries this interpretation further to embrace “not only the case in which the payment to the non-resident has in itself the quality of income but also the case of payments to a non-resident trader from which, after deduction of expenses, the income will arise”.

Entitlement to trading receipts can therefore be taken to be an indication that income becomes payable, subject to the calculation of trading profits after the end of the accounting period.

Apart from where a specific provision regards an item as income that becomes payable to a person abroad (see INTM600400), the transfer of assets provisions in general will only apply to real income of the person abroad rather than ‘deemed’ income. This is because it seems likely that only actual income could ‘become payable’ to a person abroad.

More details on how to calculate the income tax charge and what deductions are allowable can be found at INTM601100.