What does section 459 of the Income Tax (Trading and Other Income) Act 2005 do?

Section 459 provides that profits arising on the disposal of a deeply discounted security by a non-UK resident person are treated as income becoming payable to that person. This enables the transfer of assets abroad anti-avoidance rules to apply, potentially making a UK resident individual with the power to enjoy those profits liable to income tax.

Why is a deeming provision needed for deeply discounted security profits under the transfer of assets abroad rules?

The transfer of assets abroad anti-avoidance rules require there to be 'income' payable to the overseas person. A discount profit on a deeply discounted security might not naturally qualify as income. Section 459 deems such profits to be income becoming payable, ensuring the anti-avoidance rules can apply to UK resident individuals who have the power to enjoy them.

Does an exemption for non-UK resident trustees under section 458 prevent the transfer of assets abroad rules from applying?

No. Section 459 makes clear that even if the non-UK resident person is a trustee exempt from direct charge under section 458, the profits are still treated as income payable to them for the purposes of the transfer of assets abroad rules. A UK resident individual with the power to enjoy those profits may therefore still be assessed to income tax.

Can a UK resident individual be taxed on deeply discounted security profits arising to a non-UK resident person?

Yes. Under section 459, if a non-UK resident person realises profits on disposing of a deeply discounted security, those profits are treated as income payable to that person. The transfer of assets abroad rules in Chapter 2 of Part 13 of the Income Tax Act 2007 can then charge a UK resident individual who has the power to enjoy those profits to income tax.

Income Tax (Trading and Other Income) Act 2005 section 459

Transfer of assets abroad

Section 459 deals with how profits from deeply discounted securities disposed of by a non-UK resident person are treated for the purposes of the transfer of assets abroad anti-avoidance rules, potentially making a UK resident individual liable to income tax on those profits.

The section applies where profits arise on the disposal of a deeply discounted security by a person resident outside the UK (referred to as "A").
For the purpose of deciding whether a UK resident individual is liable to income tax on those profits, the transfer of assets abroad rules treat the profits as if they were income becoming payable to A.
This treatment applies even if A is not themselves liable to income tax on the profits because they are non-UK resident trustees falling within section 458.
The effect is to bring within the scope of UK income tax any UK resident individual who has the power to enjoy the profits arising to A from such a disposal.

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