CheckLists.Tax (beta)
D5. Surrender of rights/assets
EMPLOYMENT INCOME
- Release of employment-related securities option
- Release of employment-related securities option for consideration gives rise to income tax (s.477; ETASSUM54060).
Legislation: ITEPA 2003, s.477;
Cases:
HMRC manuals:
Commentary:
See also:
CHARGEABLE GAINS
Capital sum derived from asset
- Capital sum for waiver/surrender as a deemed disposal
- A capital sum received in return for waiving or surrendering a right/asset gives rise to a deemed disposal of that right/asset.
- Bensons Hosiery - a company received a payment in return for waiving its rights under a director's service agreement so as to release the director. Held: this was a capital sum derived from its contractual rights.
- It was common ground that the sum was capital (at 572). Query whether that was correct. See E2. Trading receipts.
Legislation:
Cases: O’Brien v Bensons Hosiery (Holdings) Ltd [1980] AC 562 (HoL);
HMRC manuals: CG13000 - Capital sums derived from assets: s22(1) TCGA92: contractual rights;
Commentary:
See also:
INHERITANCE TAX
- Surrender and waiver of rights as a disposition/transfer of value
Surrender
- In Newlon Housing Trust, HoL accepted that surrender of a subsisting proprietary interest was a disposition but held that giving notice to terminate a tenancy was not because it simply led to the tenancy not renewing.
Waiver
- Waiver of a potential entitlement where there is no current right (so no property) should not be a disposition/reduce T's estate.
- Waiver of a legal right to a payment/asset etc. would be a disposition that may reduce T's estate.
- For waiver of dividends see G4. Dividends.
Waiver of remuneration
- Potential exemption in s.14;
Cases:
Newlon Housing Trust v. Alsulaimen [1999] 1 AC 313 (HoL);
HMRC manuals:
Commentary: McCutcheon §2-12;
See also:
PENSIONS TAXATION
- Surrender of pension or annuity benefits/rights as unauthorised member payment
Pension rights surrender
- If a member surrenders or agrees to surrender any benefit to which they (or a dependant, nominee or successor) have an actual or prospective entitlement under the pension scheme, there is a deemed unauthorised member payment (s.172A).
- Same applies if member assigns or agrees to assign any right in respect of any sums or assets held for the purposes of the scheme.
- Based on the arm's length value (s.172A(8)).
Annuity rights surrender
- If a member surrenders or agrees to surrender any rights to payments under a
- lifetime annuity
- dependent
Exceptions
Legislation: FA 2004, s.172A;
Cases:
HMRC manuals:
Commentary:
See also:
- Value shifting from pension scheme in favour of member/employer/connected person: deemed unauthorised payment
General rule
- If:
(1) A relevant event occurs.
(2) The relevant event occurs in a way that differs from what might be expected between arm's length parties.
(3) In connection with that relevant event, the value of an asset held for the purposes of the pension scheme is reduced or a liability is increased.
(4) The value of an asset held by/for the benefit of person is increased or a liability is reduced for the benefit of a person.
(5) That person is/was a member or sponsoring employer or connected with either.
- Then: the registered pension scheme is treated having made an unauthorised payment to that person (s.174 (member); s.181 (employer)).
- Member deceased: payment treated as in respect of member but to person holding asset or liability (s.174(2)).
- Deemed payment is based on difference to what might be expected if parties to transaction were at arm's length (s.174(4)).
Connected persons
- An increase in value/reduction of liability for a person connected with a member/sponsoring employer etc. is treated as for the benefit of the member/sponsoring employer (s.161(7)).
- If member/employer is dead, test connection at date of death.
- Connected person - see ITA 2007, s.993.
Relevant events
- Change in the value of a currency.
- Creation, exercise, failure to exercise, alteration, release etc. of any power, right, option or liability relating to assets or liabilities of the scheme etc. (s.174(3), s.181(2)).
- Examples (PTM133700):
- change of rights attached to shares (e.g. to exclude right to dividend).
- altering the rights on a lease (e.g. to increase rent on lease of property to scheme).
- releasing a restrictive covenant in lease to member.
- No charge if transaction is arm's length (e.g. ordinary rent review on commercial terms).
Tax charges:
- Unauthorised payment charge (s.208).
- Scheme sanction charge on administrator (s.239).
Legislation: FA 2004, s.161; s.174; s.181;
Cases:
HMRC manuals:
Commentary:
See also: