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HMRC internal manual

Savings and Investment Manual

Transfers of income streams: overview

Transfers of income streams: overview

Selling an income stream is a device designed to try to turn economic income into a return that is treated by tax law as capital. For example shareholders could sell the right to receive a large company dividend in exchange for an amount almost equal to the dividend, without selling the shares. Without any legislative provision to counteract this, the income tax bill on the receipt might be eliminated.

The purpose of the transfers of income streams legislation is that receipts derived from a right to receive income (and which are economic substitutes for income) are to be treated as income for the purposes of corporation tax and income tax.

Broadly, where a person transfers the right to an income stream in return for consideration, it is taxed on the ‘relevant amount’ as if it was income of the type transferred. The ‘relevant amount’ will often be the amount of the consideration, but see the Corporate Finance Manual at CFM77060 (SAIM20000) for the market value rule which may apply.

Where the transferee is a company it is taxable only on its accounting profit from acquiring the income stream. This will generally be the difference between the cost of the income stream and the amount of income it actually receives. The tax treatment of company transferees is at CFM77160. However, there is no similar relief or special treatment for non-corporate transferees.

The transfers of income streams provisions do not apply to the extent that the consideration for the transfer is already charged to tax as an amount of income or is brought into account as a disposal receipt or proceeds for capital allowance purposes.

The rules apply to transfers on or after 22 April 2009.