IFM37268 - Charging Provisions: Definition of "arising": Sums released from escrow

Sums released from escrow

TCGA92/S103KG(3) - (4)

Once carried interest ceases to be deferred (IFM37266), TCGA92/S103KG(4) treats it as arising to an individual (A).

Where there is no possibility that the sum will be released to A, TCGA92/S103KG(5) disapplies the treatment in TCGA92/S103KG(4) so that the effect is that A will not be taxed.

Where none of the enjoyment conditions in relation to the sum are met and there is no reasonable likelihood that they will ever be met, the sum is not treated as arising at the point at which it ceases to be deferred carried interest. Therefore, a gain does not arise.

The enjoyment conditions that apply to carried interest are the same as those used in the general definition of “arise” in ITA07/S809EZDB (IFM36330). Wherever a sum released from escrow (or property derived from such a sum) could, at any time, benefit or be applied at the direction of the fund manager, a charge will be triggered. Where those conditions are not met, for example if an individual had failed to meet performance conditions and their remuneration was instead paid to another individual, a charge will not arise.

The deferred carried interest rules modify the application of the enjoyment conditions in relation to companies through TCGA92/S103KG(8)-(11). This mirrors the modification as part of the Disguised Investment Management Fees (DIMF) rules seen at ITA07/S809EZDB (6)-(9) (IFM36335).