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Transfers of income streams

 

The measure

The transfers of income streams rules are anti-avoidance provisions that aim to tax transfers of income by a transferor where the consideration received would not otherwise be taxable.

The rules will tax the consideration in the transferor in the same manner as that in which the transferred income would have been taxable to the transferor (absent the transfer). The transferee company will only be taxable on its accounting profit from acquiring the income stream.

Exceptions include:

  • transfers of income resulting from the grant or surrender of leases;
  • transfers of income resulting from the disposal of an interest in an oil licence;
  • amounts that are already taxed as income; and
  • transfers of income by way of security.

The rules will not apply in relation to sales of income that arise from loan relationships and derivative contracts where that income would have been subject to any exclusions under those rules.

As a result of the introduction of these rules, several existing pieces of anti-avoidance legislation will be repealed.

Who will be affected?

Companies and individuals, including partnerships, that dispose of rights to receive future income streams without disposing of the underlying asset.

We expect the legislation to be enacted in a similar form to the latest draft released on 6 March 2009 during the consultation process.

When?

The rules have effect for transfers of income taking place on or after 22 April 2009.

 

Our view

Detail on these proposals was released in November 2008 following the Pre-Budget Report, followed by a subsequent draft on 6 March 2009. The Budget notes summarise the position and indicate that the details behind them remain unchanged from the 6 March draft.

HMRC have recently suggested that the rules only apply where either:

  • there was a main purpose of tax avoidance; or
  • the asset from which the right to income arises is either an annuity, share in a company or lease of plant or machinery.

However, there has been no mention of a 'purpose test' in the latest announcement and it remains to be seen whether these suggestions have now been dropped.