INTM600900 | Transfer of assets abroad: The income charge: Power to enjoy - condition B

Condition B - ITA07/S723(2)

Condition B is that the receipt or accrual of the income operates to increase the value to the individual of any assets the individual holds, or of any assets held for the individual’s benefit.

In this context, ‘assets’ carries the same meaning described at INTM600260.

This heading covers, for example, situations where:

• the individual holds shares in a foreign company and the accrued income or profits of the company increase the value of its shares;

• the individual receives debentures in exchange for transferred assets - see Howard de Walden v CIR (25 TC 121);

• the consideration for the transferred assets is left as a debt owing to the individual by the company - see Ramsden v CIR (37 TC 627).

In these examples, the receipt of income by the foreign company increases the value of the shares, debentures or debt, so income need not be remitted, nor even accumulated, for the benefit of the individual. If in fact the income is received by or accrues to the person abroad and operates to increase the value of any assets held by or for the benefit of the individual, then the test may be considered met for the purpose of applying the income charge.

In the Howard de Walden (25 TC 121) case mentioned above, assets had been transferred by a series of transactions to companies resident abroad, and in exchange the individual had effectively received a series of promissory notes. The Court of Appeal held that the income of the non-resident companies increased the value of the promissory notes by increasing the general assets of the companies issuing them, and therefore that the test was met for the purpose of the income charge.

In the Ramsden case (37 TC 619), an individual transferred assets to a foreign company and left the cost of the assets credited to his account. Although it was held that the income charge - receipt of/entitlement to capital sums did not apply as the unpaid purchase money was not a loan, nevertheless the power to enjoy condition was met under this heading, and so an income charge arose. The individual’s right to recover his debt was an asset held by him, and the value of that right was increased by anything tending to increase the value of the company’s assets (that is, by the company’s receipt of income). Under this heading therefore the individual would have “power to enjoy” income of the company while the debt remained unpaid.

In the Lord Chetwode case (51 TC 647), a trust for the benefit of Lord Chetwode held shares in a non-UK resident company which received dividends. The House of Lords found that in the circumstances of that case the receipt of dividends by the underlying company operated to increase the value to Lord Chetwode of the assets held by the trustees for his benefit. He therefore had power to enjoy within this heading as well as within other heads of the test.