How does section 722 apply the substance over form principle?

Section 722 requires that the substantial result and effect of all relevant transactions be considered together, not individual steps in isolation. HMRC and the courts look through the legal form of arrangements to their real-world economic outcome. If income effectively accrues to the individual's benefit, the structuring of the arrangements is irrelevant.

What types of benefits are taken into account under section 722?

All benefits that may at any time accrue to the individual from the transfer and any associated operations must be considered. This applies regardless of the form of the benefits — they need not be cash payments. It also does not matter whether the individual has any legal or equitable rights to the benefits. Even indirect or informal advantages are caught.

Can an individual be taxed under section 722 even without legal entitlement to overseas income?

Yes. Section 722 explicitly provides that it does not matter whether the individual has any legal or equitable rights in respect of the benefits received. If the substantial result of all transactions is that the individual benefits from diverted overseas income, and an enjoyment condition under section 723 is met, the individual may be taxed under section 721.

Income Tax Act 2007 section 722

Q: What does section 722 of the Income Tax Act 2007 define?

Section 722 defines when a UK-resident individual is treated as having the power to enjoy income belonging to a person abroad. This is relevant for the transfer of assets abroad anti-avoidance rules under section 721. An individual has power to enjoy such income if any one of five enjoyment conditions (Conditions A to E in section 723) is satisfied.

When an individual has power to enjoy income of person abroad

Section 722 defines when an individual is treated as having the power to enjoy income belonging to a person abroad, for the purposes of the transfer of assets abroad anti-avoidance rules under section 721.

An individual is treated as having power to enjoy income of a person abroad if any one of the five "enjoyment conditions" (Conditions A to E, set out in section 723) is satisfied.
When deciding whether an individual has power to enjoy income, the substantial result and effect of all the relevant transactions must be considered — not just individual steps in isolation.
All benefits that may at any time accrue to the individual from the transfer, and from any associated operations, must be taken into account.
It does not matter what form those benefits take or whether the individual has any legal or equitable rights in respect of them.

Access full legislation.And much more.

By becoming a member, your team gets full access to Tax World research tools and source-backed tax resources.

Become a member