CheckLists.Tax (beta)
G5. Other benefits
INCOME TAX
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Close company providing benefits
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- Expense incurred in providing benefits treated as distribution
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- CTA 2010, s.1064
Legislation:
Cases:
HMRC manuals: CTM60510.
Commentary:
See also:
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Settlements legislation
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- Query whether benefit may amount to capital sum from company connected with trust: deemed capital sum to settlor, matched to income
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Background
- Where the settlor/spouse of a trust receives a capital payment from the trust, income of the trust can be matched to that capital sum and taxed on the settlor (ITTOIA s.633).​
- Capital sum means: (i) loan; (ii) repayment of a loan; (ii) any sum paid other than as income and not for full consideration.
- See i8. Distributions to beneficiaries for further notes.
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Benefit in kind
- Query whether a benefit in kind is a capital sum.
- Associated payments in relation to capital sums from companies expressly includes a transfer of an asset (s.643(3)).
- Chamberlain suggests it does not (§11.59).
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Capital sums by connected company deemed to be made by trustees
- Where:
(1) A capital sum (including loan, repayment of loan) is paid to the settlor by a body corporate connected with the settlement; and
(2) The trustees make an associated payment (directly or indirectly) to the body corporate,
Then: the capital sum is treated as paid by the trustees to the settlor for the purposes of s.633 (ITTOIA s.641).
- Connected body corporate - see s.637(8).
- Reference to settlor includes spouse (s.643(1)).
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Payment in respect of director loan account
- Could be a capital payment by the company.
- HMRC say that unpaid remuneration normally the first source of payments, but not always (CTM61070).
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Associated body corporate
- A payment by/to a body corporate which is associated with another body corporate may be treated as paid by/made to that other (s.643(4)).
- Associated - see CTA 2010 s.449.
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Associated payment (transfer not for full consideration, 5 year limit)
- Means any capital sum and any other sum paid or asset transferred other than for full consideration in money or money's worth (s.643(3)).
- Only take account of payments/transfers 5 years either side of the capital sum.
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Deemed capital sum limited by amount of associated payments
- The amount of the capital sum treated as paid to the settlor by the trustees is capped by the total associated payments up to the end of the tax year (s.641(3)).
- If more associated payments are made in subsequent years, more capital sum is treated as paid (s.641(4)).
- Note associated payments capped at 5 years from date of capital sum (s.643(3)).
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Exclusion for certain loans to settlor
- Loan to settlor by a body corporate is not caught where (s.642):
(1) The whole loan is repaid within 12 months.
(2) No loans by any connected body corporate have been outstanding for more than 1 year "in any period of 5 years".
(3) No loans made by the settlor to any connected body corporate have been outstanding for more than 1 year "in any period of 5 years".
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Exclusion for certain loan repayments
- Repayment of loan to settlor by a body corporate is not caught where (s.642):
(1) The whole loan is repaid to the settlor within 12 months.
(2) No loans by any connected body corporate have been outstanding for more than 1 year "in any period of 5 years".
(3) No loans made by the settlor to any connected body corporate have been outstanding for more than 1 year "in any period of 5 years".
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Legislation:
Cases:
HMRC manuals: CTM61070;
Commentary:
See also:
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Transfer of assets abroad: transferor charges
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- Benefit amounting to capital payment
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Legislation:
Cases:
HMRC manuals:
Commentary:
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Transfer of assets abroad: benefits charge
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- Matching benefits with income
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General
- Benefits from non-resident close companies may not be taxed as income.
- A benefit in specie from a non-resident company could be a benefit for the purposes of the TOAA rules matching benefits to income.
- Probably must have been lawful for the company to provide the benefit (the benefit must be provided out of assets available for the purpose.
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Benefit matched to income on which transferor also liable
- HMRC give an example of transferor chargeable on whole income of company, but another individual receives a benefit from the company. Normally just and reasonable to tax the transferor on the whole income (INTM602480).
- For detailed notes see Trust related: i9. Benefits provided by trust.
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Income arising to company before the individual was a shareholder
- If relevant income is fixed for a tax year, subsequent acquisition of a company should not make the pre-acquisition income of the company relevant income.
- Query the position of a shareholder who was a beneficiary of the trust that previously owned the company.
- HMRC are understood to argue that the pre-acquisition income becomes relevant income (see Kessler, Chapter 50).
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Legislation:
Cases:
HMRC manuals: INTM602480;
Commentary:
See also:
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- Matching benefits to company income that has been distributed
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Company distributes income in the year it arises
- If the income is used to pay a distribution to a person other than the recipient of the benefit, it is not available to provide benefits.
- Query whether you look at the position at the time the income arises, the end of the year, or when the year is finalised.
- In relation to trusts, HMRC seem to accept that income distributions from income can be deducted (at least if subject to tax in some jurisdiction).
- HMRC accept, in general, the need to avoid economic double taxation (INTM602380).
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Company distributes income in a later year
- Arguably, at this point, the company incomes ceases to be available to provide benefits and thus ceases to be relevant income.
- But the recipient (e.g. parent company) receives a distribution which could be relevant income.
- Query what the position is if the company income is distributed in a liquidation and thus is capital (Clarke §44.31).
- HMRC say that the company income remains relevant income (INTM601700, example 2).
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Legislation:
Cases:
HMRC manuals:
Commentary:
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- Matching benefits with company income that arose prior to sale
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Sale to third party
- If it is right that the income needs to continue to be available to provide benefits, it ceases to be relevant income.
- HMRC are understood not to accept that income can cease to be relevant income, but query how that can be justified in this situation.
- The CGT rules will have applied to any gain on the sale.
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Sale to the individual/person from whom the individual can still receive benefits
- The income remains available to provide benefits and is relevant income.
- Query the interaction with CGT on the sale proceeds.
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Legislation:
Cases:
HMRC manuals:
Commentary:
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- Matching benefits from company with income of another entity/structure
Company funded with assets from another company or a trust
- Benefits are taken into account if provided out of assets available as a result of the relevant transfer or one or more associated operations (s.732(1)(c)).
- Income is taken into account if, as a result of the relevant transfer or associated operations it can be used directly or indirectly to benefit the individual (s.733(1), Step 3).
- If an otherwise separate trust/company etc. has provided funds to the company that provides the benefit (e.g. a loan), that may be an associated operation as a result of which assets originating in the other entity/structure can not be used to provide benefits through the company.
- Pre-transfer income of other entity/structure: This analysis would allow income of the other entity/structure to be matched with benefits from the company, insofar as those benefits can be regarded as provided out of the assets transferred (relevant transfer to the other entity/structure + associated operation (transfer to company).
-Post-transfer income of other entity/structure: If the benefit is provided by the company out of the assets transferred, and the recipient can also benefit from the income of the other entity/structure, it would seem that the benefit can be matched to post-transfer income of the other entity/structure (both the condition re benefits and re income are satisfied). The position is analogous to two trusts funded by the same transfer (below).
- If the recipient of the benefit cannot benefit from the other entity/structure, that would seem to block matching to post-transfer income.
- See below on changes in availability of income to provide benefits.
- If the company had its own assets, separate to the transfer, benefits provided out of those asset should not be matched to income in the other entity/structure (see, by analogy, Multiple transfers to the same trust).
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Legislation:
Cases:
HMRC manuals:
Commentary: Clarke §43.37;
See also:
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CAPITAL GAINS TAX
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Matching gains to benefits (s.87 + s.89(2) + Sch 4C)
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- Trust gains matched to benefit received from company controlled by trustees
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General rule
- If:
(1) A capital payment is received from a close company/company that would be close if UK resident;
(2) The company is controlled by the trustees of a settlement;
then, it is treated as received from the trustees for the purposes of matching trust gains to benefits from the trust (s.96(1)).
- Control:
- Company is controlled by the trustees alone or together with the settlor/persons connected with the settlor (s.96(8)).
- Apply a modified version of CTA 2010, s.450/s.451 (s.96(10)).
- See detailed notes on matching in i9. Benefits provided by trust.​
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Same company controlled by multiple trusts
- If multiple trusts control the same company (applying the above test), it is treated as received from all of them.
- But there is still only one capital payment (and one receipt), so apportionment must apply.
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Company makes capital payment to trust which 100% owns company (generally ignore)
- HMRC say: "In general, transactions between trustees and companies which they, directly or indirectly, wholly own, or between such companies, are outside the scope of TCGA 1992 Sch 5 para 9(3) and are not treated as capital payments within TCGA 1992 s 97." (SP5/92, §18)).
- E.g. beneficial loan to trust by its subsidiary disregarded.
- Query what the position is if the trust owns 99% of the company, and why - Kessler suggests capital payment to the extent of trust non-ownership, at least in some cases.
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Legislation: TCGA s.96; CTA 2010, s.450, a.451.
Cases:
HMRC manuals:
Commentary:
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- Company who received benefit from trust making onward gift out of/related to trust benefit: onward gift may be treated as from trust
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​- See i9. Benefits provided by trust.
- In essence, if the original recipient of a capital payment/benefit was non-UK resident/qualifying new resident and, as part of an arrangement, provided (directly or indirectly) a benefit to another person (potentially before or after the capital payment) who was UK resident, the onward gift can be treated as a capital payment received from the trust for the purpose of the matching rules. ​
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- Tax on companies receiving benefits where matched to trust gains
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- See i9. Benefits provided by trust.
- Note that HMRC will (normally) not treat transactions between companies 100% owned by the same trust as capital payments in relation to that trust
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- Attribution of benefits received by non-resident close company to participators
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- See i9. Benefits provided by trust.
- Note that HMRC will (normally) not treat transactions between companies 100% owned by the same trust as capital payments in relation to that trust
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CORPORATION TAX
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Close company providing benefits
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- Corporation tax charged on provision of benefit that does not give rise to s.455 tax or income tax
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- CTA 2010, s.464A.
Legislation:
Cases:
HMRC manuals: CTM61570.
Commentary:
See also:
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