CheckLists.Tax (beta)
B4. Disposal of right to income
GENERAL
Classifying receipt from disposal
Capital or income
- Proceeds of sale for a lump sum of an annuity were capital (Paget v IRC [1938] 2 KB 25)
- Assignment of 6 years' rent for lump sum constituted capital (CIR v. John Lewis Properties Plc [2002] EWCA Civ 1869)
- Disposal of film rights in a book for 10 years for a lump sum not calculated by reference to a royalty was capital (Nethersole v Withers (1948) 28 TC 501)
- On sale of right to dividend see IRC v. McGuckian [1997] UKHL 22;
- HMRC accept that where a lump sum is provided in return for giving up all future rights to payment under an insurance policy, the lump sum will usually be capital (IPTM6140).
Artificial arrangements to convert income into capital
- Where there was a scheme to sell the right to dividend, declare a dividend and use that cash to pay the purchase price, it was treated as income.
- "the sale and assignment for value to Mallardchoice of the future right to the 1979 dividend was a discrete transaction directed to that dividend alone which was carried through by artificial and pre-ordained steps inserted for no business purpose. As such, the liability for tax on the indirect receipt of such dividend by Shurltrust has to be determined by stripping out the artificial steps and applying the provisions of the Taxes Acts to the real transaction, i e the payment of a dividend to the shareholder, Shurltrust, which received such dividend as income." (McGuckian at 913)
Legislation:
Cases:
IRC v. McGuckian [1997] STC 908 (HoL);
HMRC manuals:
Commentary:
See also:
- Sale of right to receive dividends
-Sale of right to future dividends for lump sum would be capital:
- "Prima facie those moneys, being the price of the sale by Shurltrust of its right to the future dividends of Ballinamore, constitute capital not income." (McGuckian)
But Lord Cooke noted: "In many cases the price received for an assignment of the right to receive a dividend may be classified as a capital receipt; but it would be unsafe to assume that this will invariably be so. The circumstances surrounding the transaction may require the conclusion that the receipt is income. I think it plain that such is the case here."
- But where there was a scheme to sell the right to dividend, declare a dividend and use that cash to pay the purchase price, it was treated as income.
- "the sale and assignment for value to Mallardchoice of the future right to the 1979 dividend was a discrete transaction directed to that dividend alone which was carried through by artificial and pre-ordained steps inserted for no business purpose. As such, the liability for tax on the indirect receipt of such dividend by Shurltrust has to be determined by stripping out the artificial steps and applying the provisions of the Taxes Acts to the real transaction, i e the payment of a dividend to the shareholder, Shurltrust, which received such dividend as income." (McGuckian at 913)
Legislation:
Cases:
IRC v. McGuckian [1997] STC 908 (HoL);
HMRC manuals:
Commentary:
See also:
INCOME TAX
Sale of occupation income
XX
XX
Legislation: ITA s.780
Cases:
HMRC manuals:
Commentary:
See also:
- Income tax on amounts purportedly paid for goodwill
- See XX
Legislation:
Cases:
Grint v. HMRC [2024] UKFTT 956 (TC), Judge Morgan;
HMRC manuals:
Commentary:
See also:
Tax on income arising post-assignment
- Person assigning right to income still entitled to income if receipt by 3rd party benefits assignor
-Assignor still treated as entitled if payment of the income to a third party benefits them (Burley, §82).
- For instance, where supplier instructs customers to money directly to bank to be treated as a reduction of the supplier's debt (Good, §89).
- "[67]...The cases establish a broader principle that a person can, depending on the terms of the statute and the context of the particular payments, be held accountable to tax on payments to a third party if that person benefits from those payments.
[68]...In each of them, the taxpayer derived a benefit from the payment which was actually received by a third party, which benefit was sufficient to demonstrate their entitlement to the income for tax purposes..." (Good see also §93).
- Same result applied in Burley where the Partnership assigned to the lender by way of security all amounts due under a film lease and the partner assigned, absolutely, his right to income from the partnership - partner still entitled to the income used to discharge the loan for which he was personally liable (§§83 - 84).
Legislation:
Cases:
Good v. HMRC [2023] EWCA Civ 114;
Burley v. HMRC [2025] UKFTT 989 (TC), Judge Baldwin;
HMRC manuals:
Commentary:
See also:
- Retaining right to reversion of income rights may means assignor continues to be entitled to income
- "[69] I accept Mr Baldry's point that the Scheme did not envisage implementation of these reversionary rights, because the intention was that the MAPs would meet the interest due under the Loan up to the point that the Scheme concluded, but nonetheless, as a matter of contract, the taxpayer retained a right of reversion, and for that further reason cannot be said to have divested himself completely of the MAPs so as no longer to be entitled to them." (Good).
- Note also the question of whether the assignment was valid in law (Good, §93).
Legislation:
Cases:
Good v. HMRC [2023] EWCA Civ 114, Whipple LJ;
HMRC manuals:
Commentary:
See also:
- Transfer of occupation income
XX
Legislation: ITA 2007, s.773;
Cases:
HMRC manuals:
Commentary:
See also:
Transfer of income without asset
Transfer of income stream anti-avoidance
XX
Legislation: ITA 2007809AZA
Cases:
HMRC manuals:
Commentary: Kessler;
See also: