Income Tax Act 2007 section 742A

Post-5 April 2012 transactions: exemption for genuine transactions

Section 742A provides an exemption from the transfer of assets abroad rules where a transaction taking place on or after 6 April 2012 is genuine and does not conflict with relevant treaty provisions.

• Income attributable to a post-5 April 2012 transaction is left out of account (exempt from charge) if an HMRC officer is satisfied that the transaction meets two conditions: it is a genuine transaction on arm's length terms, and the resulting tax charge would not contradict relevant treaty provisions relating to EU or EEA freedoms.
• A transaction is considered genuine if it is carried out at market value between unrelated parties, or on terms that unrelated parties would agree, taking into account all circumstances. Where business activities are carried on outside the UK through a business establishment, the activities must involve selling goods or services commercially, using sufficient skilled staff, appropriate premises and equipment, and adding value proportionate to the scale of those activities.
• Where the relevant transfer is made by an individual entirely for personal (non-business) reasons and for the benefit of other individuals without any direct or indirect payment, the treaty-related condition (Condition B) does not apply, provided this covers all assets transferred, assets representing those transferred assets, income arising from them, and accumulated assets representing that income.
• If an individual cannot demonstrate that the entire transaction satisfies Condition B but can demonstrate compliance for a part of the transaction, the exemption may be applied to that qualifying portion only.