Income Tax Act 2007 section 735AD

Settlor liable for benefits charge despite being transferor

Section 735AD ensures that a settlor who receives a benefit from an offshore structure can be taxed under the benefits charge (section 732), even if they are also the person who originally transferred assets abroad, but only where the underlying income qualifies as protected foreign-source income or transitionally protected income.

• Normally, the benefits charge under section 732 only applies to individuals who are not already liable under the transferor charges in sections 720 or 727 — but this section overrides that restriction where the benefit recipient is also the settlor.
• The settlor can therefore face the benefits charge even though, as the original transferor, they would ordinarily be excluded from it.
• However, actual taxation under section 731 only arises if the deemed income can be matched — under the rules in section 735A applied by reference to the settlor — with relevant income that is either protected foreign-source income or transitionally protected income relating to the original transfer.
• The practical effect is to bring settlors within the benefits charge in limited circumstances tied to protected or transitionally protected income, preventing them from escaping tax simply because they also happen to be the transferor.