188体育

The income and benefits set out in the table below result from a transfer of assets in 2000-2001. It is agreed that an exemption applies to the transfer, such that there is no income or benefits charge. Following the death of the provider of the funds, a transaction designed for the purpose of tax avoidance is undertaken in 2007-2008 in relation to the assets of the fund. It is agreed no exemption applies to prevent a potential benefits charge for 2007-2008. What is the benefits charge for that year?

听

Year	Relevant income	Benefits received
2000-2001	拢50,000	拢10,000
2001-2002	拢50,000	拢10,000
2002-2003	拢50,000	拢10,000
2003-2004	拢50,000	拢10,000
2004-2005	拢50,000	拢10,000
2005-2006	拢50,000	拢10,000
2006-2007	拢50,000	拢10,000
2007-2008	拢5,000	拢10,000

听

First there is no charge under either the income or benefits charge for 2000-2001 to 2006-2007, as an exemption applies in relation to the original transfer.

For 2007-2008 there would be no benefits charge if an exemption applies.

As there are both pre-5 December 2005 and post-4 December 2005 transactions, the relevant exemption is in ITA07/S740 (INTM602840).

As the transaction after 4 December 2005 does not meet the conditions for exemption, ITA07/S740(3) requires the modifications described at INTM601760 to apply for the purpose of the benefits charge.

To determine whether income is treated as arising to the individual for 2007-2008, and if so the amount of it, the Steps approach must be applied and with the specified modifications (INTM601740).

Step 1 鈥� 鈥榯he total benefits鈥�

Add together the benefits received in the tax year (2007-2008) and in any earlier year in which benefits charge could or has applied.

In this example there are two possible approaches to 鈥榚arlier years鈥�.

The first approach is that there are no earlier years to be taken into account under this step as there was an exemption and thus the provisions did not apply (all earlier years were pre-ITA 2007).

The second approach is that the benefits of all earlier years must be taken into account and the modifications provided by section ITA07/S740(6)-(7) apply to this step. The modification if applied in this way would seem to require 2000-2001 to 2004-2005 benefits to be left out, and that for 2005-2006 to be time apportioned. If applied in this way, the benefit received in 2006-2007 would also be taken into account so that 鈥渢he total benefits鈥� would then become 拢10,000 + 拢10,000 + 拢3,333 (4/12 * 拢10,000). Such an approach would not seem to be consistent with an exemption applying for 2006-2007, as it would in effect bring those benefits back into the calculation in 2007-2008 and result in an equivalent amount of income being charged. HMRC take the view that the apportionment required by ITA07/S740(7) will only be relevant where there are transactions in 2005-2006 post-4 December, with a pre-5 December transaction in that or an earlier year.

Therefore, n this example there are no earlier years to take into account in this step, as there are no earlier years to which a benefits charge applied, or to which a benefits charge would have applied but for an insufficiency of relevant income to match against benefits.

2007-2008 (Benefit): 拢10,000

2000鈥�2001 to 2006-2007 (Exemption for all years): 拢0

Total benefits: 拢10,000

Step 2 鈥� 鈥榯he total untaxed benefits鈥�

Deduct from the total benefits the amount of income treated as arising to the individual in any earlier tax years:

Total benefits: 拢10,000

Income for benefits charge (2000-2001 to 2006-2007): 拢0

Total untaxed benefits: 拢10,000

Step 3 鈥� 鈥榯he relevant income of the tax year鈥�

The income of 2007-2008 which can be used for providing a benefit for the individual is 拢5,000, which is 鈥榯he relevant income of the tax year鈥�.

Step 4 鈥� 鈥榯otal relevant income鈥�

Add together the relevant income of 2007-2008 and the relevant income of years 2000-2001 to 2006-2007. The modification provided by ITA07/S740(5) requires the earlier years鈥� income be taken into account even though there was an exemption.

Relevant income (2007-2008): 拢5,000

Relevant income (2000-2001 to 2006-2007): 拢350,000

Total relevant income: 拢355,000

Step 5 鈥� 鈥榯he available relevant income鈥�

Deduct from the total relevant income, the amount deducted at Step 2. In this example there are no other deductions to be taken into account.

Total relevant income: 拢355,000

Deducted at Step 2: 拢0

Available relevant income: 拢355,000

Step 6 鈥� 'the amount of income treated as arising for the tax year'

Compare the result of Step 2 with the result of Step 5:

Total untaxed benefits: 拢10,000

Available relevant income: 拢355,000

Lower of the two is: 拢10,000

The amount treated as income arising to the individual in 2007-2008 is therefore 拢10,000.

If in this example the 鈥榯ainting鈥� transaction had taken place after 4 December 2005 and before 6 April 2006 then, even though the ITA 2007 Steps approach did not apply for that year (see INTM601820), the effect would have been the same, and applying the 鈥榤odifications鈥� would have resulted in a comparison of time apportioned benefits of 2005-2006 with relevant income of that and all earlier years.

If the facts above for 2007-2008 had been those of 2005-2006, the result would have been a benefits charge of 拢3,333 for 2005-2006 regardless of when after 4 December 2005 (and before 6 April 2006), the tainting transaction took place.