INTM601060 | Transfer of assets abroad: The income charge: Examples of capital sum

From HM Revenue & Customs · International Manual

Some examples of items that are a capital sum have already been seen in the previous paragraphs, for example:

a loan received by an individual
a loan made by an individual
the repayment of a loan to an individual
a capital sum received by a third person at the direction of an individual or by assignment of the individual’s right to receive it.

the situation where an asset is transferred to a person abroad at an inflated price; where an individual transfers an asset and receives full consideration in money or money’s worth, even though by general nature that consideration may be a ‘capital’ receipt, it would not be a ‘capital sum’ for the purpose of these provisions because of the specific wording in the legislation defining the meaning of the term for this purpose; hence it is only where an inflated price is received that there could be a capital sum for this purpose.
a capital distribution from a foreign company; a foreign company may, under the law of the jurisdiction in which it is established, be able to make a so-called ‘capital distribution’; where such a distribution received by the individual is found in fact not to be an income receipt, and so satisfies the condition to be any other sum payable otherwise than as income, it can be a capital sum for this purpose; in considering whether any such payment or entitlement from a ‘foreign possession’ (the shareholding that results in the payment), is a capital sum, due regard must be had to UK tax law dealing with ‘income’ from foreign possessions.

an individual transfers assets to a person abroad for full consideration and leaves the cost of the assets credited to his account with that person; the unpaid purchase money will not normally be regarded as a loan following the decision in Ramsden v CIR (37 TC 619); however, although the capital sum test may not be met for the purpose of this income charge, the presence of an account with a person abroad to which sums are credited may be indicative of that individual having the power to enjoy income, for example as in the Ramsden case through Condition B in INTM600900.
promissory notes or debentures payable on demand are issued to the individual as part of the consideration for the transfer of assets; the amount payable under the notes, not being payable by way of loan and being payable for full consideration, is unlikely to be a capital sum for this purpose, as was found in the case of Lee v CIR (24 TC 207); however, as discussed at INTM600900, such an issue of promissory notes may give rise to a power to enjoy the income of the person abroad and bring the individual within that income charge.