How does section 740 of the Income Tax Act 2007 grant full exemption from the transfer of assets abroad charge?

Full exemption under section 740 requires both conditions to be met: the post-4 December 2005 transactions must satisfy the purpose test in section 737(2), and the pre-5 December 2005 transactions must satisfy the purpose test in section 739(2). If both are satisfied, no transfer of assets abroad liability arises for that tax year.

What happens under section 740 if only the pre-5 December 2005 purpose test is passed?

If only the pre-5 December 2005 transactions pass the purpose test in section 739(2) but the post-4 December 2005 transactions fail the test in section 737(2), the transfer of assets abroad charge still applies. However, important modifications limit its scope by excluding income arising before 5 December 2005 and generally disregarding benefits received on or before 5 April 2006.

How are benefits received during 2005–06 treated under the section 740 modifications?

For a benefit received during the 2005–06 tax year, only the portion attributable to the period before 5 December 2005 is excluded from the charge, determined on a time apportionment basis. The remaining portion relating to the period from 5 December 2005 to 5 April 2006 remains within the scope of the transfer of assets abroad charge.

Does a past exemption under section 739 or section 740 affect the computation of relevant income for earlier tax years?

No. When computing relevant income for an earlier tax year under section 733(1), the legislation confirms it does not matter whether the individual was exempt in that earlier year because of the pre-5 December 2005 purpose test in section 739 or because of section 740 itself. This ensures past exemptions do not distort the available income computation.

Income Tax Act 2007 section 740

Exemption: relevant transactions include both pre-5 December 2005 and post-4 December 2005 transactions

Section 740 explains how the exemption from the transfer of assets abroad rules applies when the relevant transactions straddle the key date of 5 December 2005, including both earlier and later transactions.

Full exemption is available only if the post-4 December 2005 transactions pass the purpose test in section 737(2) and the pre-5 December 2005 transactions pass the purpose test in section 739(2).
Where only the pre-5 December 2005 test is passed but the post-4 December 2005 test is not, the transfer of assets abroad charge still applies but with important modifications that limit its scope.
Under these modifications, income arising before 5 December 2005 is excluded from the computation, and benefits received on or before 5 April 2006 are generally disregarded when calculating the charge on benefits received from a person abroad.
For a benefit received during 2005–06, only the portion enjoyed before 5 December 2005 is excluded, determined on a time apportionment basis; the remainder stays within the charge.

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