What is the purpose of section 737 of the Income Tax Act 2007?

Section 737 sets out the purpose test that determines whether an individual can be exempted from income tax under the transfer of assets abroad rules, where all relevant transactions took place after 4 December 2005. The individual must satisfy HMRC that either Condition A or Condition B is met to escape the charge.

What are Condition A and Condition B under section 737 ITA 2007?

Condition A requires that it would not be reasonable to conclude tax avoidance was a purpose of the relevant transactions. Condition B is a fallback requiring all transactions to be genuine commercial transactions and that none was more than incidentally designed for tax avoidance. The individual bears the burden of satisfying HMRC that one condition is met.

Whose purposes are considered when assessing the purpose test under section 737?

HMRC considers the intentions and purposes of anyone who designed, carried out, or provided advice on the relevant transactions, whether or not they were paid for their involvement. This means the motives of advisers, intermediaries, and other participants are all relevant when determining whether tax avoidance was a purpose of the transactions.

How do associated operations affect the section 737 exemption?

Associated operations must be taken into account even if they would not normally form part of the relevant transactions. If including an associated operation, either alone or with other transactions, would cause the exemption conditions to fail, it must be brought into the assessment. This prevents taxpayers from structuring arrangements to place problematic elements outside the purpose test.

Income Tax Act 2007 section 737

Exemption: all relevant transactions post-4 December 2005 transactions

Section 737 sets out the purpose test that determines whether an individual can be exempted from income tax under the transfer of assets abroad rules, where all the relevant transactions took place after 4 December 2005.

An individual is not liable to income tax if they satisfy HMRC that either Condition A (tax avoidance was not a purpose of the transactions) or Condition B (all transactions were genuine commercial transactions and none was more than incidentally designed for tax avoidance) is met.
When assessing the purpose of the transactions, HMRC will consider the intentions of anyone who designed, carried out, or advised on those transactions, whether or not they were paid for doing so.
The term "taxation" is defined broadly to include all taxes, duties and national insurance contributions for which HMRC is responsible.
Any associated operation that would cause the exemption conditions to fail must be taken into account, even if it would not normally form part of the relevant transactions.

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