Special rules apply to transfers of income streams. The rules make it clear that the sale of an income stream – designed to turn economic income into a return that is treated by tax law as capital – is unlikely to work. For example, shareholders could sell the right to receive a large company dividend in exchange for an amount almost equal to the dividend, without selling the shares. Legislative is in place to ensure that the Income Tax payable on such a receipt cannot be avoided.

The transfers of income streams legislation ensure that receipts derived from a right to receive income (and which are economic substitutes for income) are to be treated as income for the purposes of Corporation Tax and Income Tax.

Where the transferee is a company, it is taxable on its accounting profit from acquiring the income stream. This will generally be the difference between the cost of the income stream and the amount of income it actually receives. There is no similar relief or special treatment for non-corporate transferees. The legislative provisions do not apply under certain limited circumstances.

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