INTM601020 | Transfer of assets abroad: The income charge: Capital receipt condition

This section describes the capital receipt condition (fourth bullet of INTM600660) for the purpose of the income charge – receipt of/entitlement to capital sums.

The capital receipt conditions which are set out in ITA07/S729 are met in respect of the individual in a tax year if:

• either

  • in the tax year the individual receives or is entitled to receive any capital sum, whether before or after the relevant transfer (see INTM600220), or

  • in any earlier tax year the individual has received any capital sum, whether before or after the relevant transfer, and

• the payment of that sum is (or, in the case of entitlement, would be) in any way connected with any relevant transactions (see INTM600200).

What is meant by ‘capital sum’ is described at INTM601040, and INTM601060 gives examples relating to this condition.

As explained in INTM600660, once the capital receipt condition is met liability can continue under this charge for any tax year in which income arises that has the appropriate connection with the relevant transfer, one or more associated operations, or a relevant transfer and one or more associated operations. However, if entitlement to a capital sum ends completely and there are no other grounds for the income charge, the liability under this charge will not normally be extended beyond the tax year in which this entitlement ceases. Where it is contended that the entitlement to receive a capital sum has ceased, it is important to ascertain all the facts to determine that this is in fact the case.

When considering whether the payment of a sum is ‘in any way connected’ with the relevant transaction, in the case of Fynn v Commissioners of Inland Revenue (37 TC 629), Upjohn J concluded that the words should be given their ordinary meaning. In this case involving a settlor of a trust making a loan to an underlying overseas company, it was concluded on the facts that the loan was not connected with the original transfer and, as such, the capital receipt condition was not met.