INTM600940 | Transfer of assets abroad: The income charge: Power to enjoy - condition D

Condition D - ITA07/S723(5)

Condition D is that the individual may become entitled to the beneficial enjoyment of the income if one or more powers are exercised or successively exercised.

For the purpose of this test, it does not matter who may exercise the powers, or whether they are exercisable with or without the consent of another person.

This definition of the power to enjoy was amended by the Finance Act 1981 and these notes cover only the position after that amendment.

This test includes the case in which the power to enjoy depends on the exercise of some joint power.

Perhaps the most common example of where this test may apply is to the income of a company underlying a settlement whose shares are acquired by the settlement trustees. The individual who made the settlement remains a beneficiary and as such has power to enjoy the income of such a company, by becoming entitled to its beneficial enjoyment through the successive exercise of powers. For example, the declaration of a dividend by the company of which the trustees are shareholders, followed by an exercise of discretion as to the application of the dividend by the trustees.

This power to enjoy and with it the income charge can apply notwithstanding that income arising to the trustees of a settlement may be deemed to be that of the settlor under the Settlements Legislation, (Chapter 5, Part 5 ITTOIA 2005). See INTM602360 where more than one set of charging provisions may appear to apply in relation to the same income.

In another example, CIR v Botnar (72 TC 205), the individual’s counsel argued that even if the individual did become entitled to the beneficial enjoyment of income which could be traced to the companies underlying the settlement involved, it had not been the income of those companies when it was beneficially enjoyed. The HMRC argument, which was accepted by the Court of Appeal, was that the income which the individual beneficially enjoyed had simply to have been the income of the companies at some earlier stage. It was not necessary that it still possessed the characteristics of being income of the underlying companies when it was beneficially enjoyed. What this condition is concerned with is the beneficial enjoyment in the future of what in the past was the income of the companies.