INTM602700 - Transfer of assets abroad: Exemptions from charge: By reference to transactions
Source: gov.uk (2025-04-07)


The conditions for exemption are analysed ‘by reference to the relevant transactions’. The term ‘relevant transactions’ is given a specific meaning (see INTM600200 (https://www.gov.uk/hmrc-internal-manuals/international-manual/intm600200)), which applies equally to each exemption test. Each and every transaction that falls to be taken into account in determining what would otherwise be a chargeable amount needs to be considered, and in appropriate cases evidence produced to show how the test for exemption being claimed is met. The point being that the tests are transactional and require all the transactions to be considered in satisfying the relevant test.

Taking each of the potential charges this can perhaps be summarised as shown below.

Income charge – power to enjoy

The transactions to be taken into account are those that result in income becoming payable to a person abroad together with those other associated operations, if different, which result in the individual having the power to enjoy the income.

Income charge – receipt of/entitlement to capital sums

The transactions to be taken into account are those that result in income becoming payable to a person abroad, together with those other associated operations, if different, which result in the individual receiving or being entitled to receive a capital sum.

Benefits charge

The transactions to be taken into account are those that result in income becoming payable to a person abroad together with those other associated operations, if different, which result in the individual receiving a benefit provided out of assets available for the purpose by reason of such transactions.

From this it can be seen that in some instances the same transactions may result in income becoming payable and also give the power to enjoy the income, the entitlement to a capital sum, or result in receipt of a benefit. In other instances, there may be two sets of transactions, one leading to the income that becomes payable, the other to the power to enjoy, entitlement to capital sum or receipt of benefit. Whichever circumstance applies, the individual will need to have regard to all the transactions in showing how the particular test is met.

In examining the actual conditions for exemption at INTM602760 (https://www.gov.uk/hmrc-internal-manuals/international-manual/intm602760) onwards, it will be seen that there may also be further associated operations, apart from those described above, that fall to be taken into account in considering whether particular conditions are met. These further associated operations will need to be considered, for all transactions after 4 December 2005 following the changes introduced in the Finance Act 2006. Where that is the case, then the individual will need to satisfy HMRC in relation to all those transactions.

Although constructed differently, the pre-Finance Act 2006 legislation also took a transactional approach to the avoidance purpose exemption test. It required the individual to show that the conditions were met in relation to the transfer of assets, or associated operations, or any of them, or in relation to the transfer of assets and any associated operations. There is more about this at INTM602760 (https://www.gov.uk/hmrc-internal-manuals/international-manual/intm602760) onwards, which consider the conditions for exemption.

Under the former legislation not every transaction will necessarily fall to be taken into account. Normally it will only be those that contribute to an outcome that falls within the conditions for a charge, such as those transactions which result in income becoming payable, or those which give the power to enjoy income, entitlement to capital sum or receipt of a benefit. For those that are within the provisions, the individual will be required to show that the conditions for exemption are met.

The principle that it is only transactions that lead to the particular outcomes which fall to be considered is demonstrated by the 1969 decision of the House of Lords in Herdman v CIR (45 TC 394). Although that case was on legislation (ITA 1952) constructed somewhat differently from that in ITA 2007 or ICTA 1988, the broad thrust of the principles demonstrated is the same as the approach set out in the bullets above.

In that case the Special Commissioner had found that a transaction which brought about income becoming payable to a person abroad, and which gave power to enjoy it, satisfied on the evidence available the conditions for exemption. There were however further transactions whose purpose would not have satisfied the test for exemption, but those transactions neither resulted in income becoming payable to a person abroad nor gave the individual any new or additional power to enjoy income. The House of Lords accepted the reasoning of the Court of Appeal in concluding that these additional transactions did not fall to be taken into account. Lord Chief Justice MacDermott in giving his decision, which was endorsed by the House of Lords, said (at pages 406/407) in commenting on and accepting the exposition given by Counsel for the Appellant:

My reasons for this view may be enumerated as follows. (I) The conditions which bring subsection (1) [ITA52/S412(1)] into force and make the income of the non-resident person chargeable as that of the individual concerned depend upon a true alternative, upon the effect of either (i) the transfer of assets alone or (ii) that transfer in conjunction with associated operations. If (i) applies (ii) does not. (II) If subsection (1) is brought into force by the transfer of assets alone, subsection (3) [the exemption provision] must be applied accordingly and so that the taxpayer will escape from liability under subsection (1) on proving that the purpose of the transfer was not tax avoidance. In such a case any operation which is an “associated operation”, in the sense of being within the definition in subsection (4), will fall outside subsection (1) and outside subsection (3) as well.

He went on to expand his reasoning into the facts of the particular case which indicated the extent of the transactions that resulted in income becoming payable and the individual having the power to enjoy that income. No other transactions fell to be considered.

HMRC confirmed the use of this principle in a Tax Bulletin article in 1999 in relation to the ‘power to enjoy’, saying that, “it has been the Revenue's practice in considering whether a defence under section 741 [ICTA 1988] is available to consider only the transfer and any associated operations which directly establish a power to enjoy the income of the overseas person under any particular sub-head in section 742(2) [ICTA 1988]”.

But there are some instances within the specific conditions where a wider approach is required and individuals will need to take this into account in providing the information required about transactions in their tax returns.

Specifically, Finance Act 2006 introduced a new provision ITA07/S737(8) which will be considered further in the detailed conditions. This means that the individual may now have to disclose to HMRC additional associated operations which may not result in outcomes that meet the requirements for a charge. This is because the new provision reversed the principle in Herdman - for transactions taking place on or after 4 December 2005. It is important therefore that the individual, who is seeking to show that the conditions for exemption are met, properly identifies all the transactions that must be taken into account and provides the appropriate facts about each.

Although the above approach was adopted in relation to the avoidance purpose exemption, the same transactional approach will apply when considering cases under the genuine transactions exemption introduced by the 2013 Finance Act in relation to transactions taking place on or after 6 April 2012. The approach is considered further in relation to the genuine transaction exemption in INTM603100 (https://www.gov.uk/hmrc-internal-manuals/international-manual/intm603100) onwards. It should be noted that the genuine transactions exemption was repealed in 2025 - 26 and therefore does not apply from this tax year onwards.