HMRC have responded to a recent judgment against them by the Supreme Court to plug a loophole in the ‘transfer of assets abroad’ rules.
What are the transfer of assets abroad (TOAA) rules?
When a person transfers ownership of an asset to an offshore entity, this may result in reduced UK tax on the income arising from that asset. The TOAA rules allow HMRC to look through certain offshore structures and tax the underlying income on the person who originally transferred the asset if that person continues to enjoy or benefit from that income.
What was the loophole?
If the person who transferred the asset overseas was a company, this may not have been considered a ‘relevant transfer’ under the TOAA rules, and the income may have avoided UK taxation once the asset was owned offshore. This exact situation arose in the case of Fisher & Anor v R &C Commrs [2023], which ended up in the Supreme Court. The judgment in that case went against HMRC concluding that the TOAA rules did not apply as the company transferred the assets.
What is the change?
It appears that in direct response to this ruling, HMRC have introduced a change to the TOAA rules from 6 April 2024. The changes mean that if a transfer of assets is made by certain companies owned by a small number of shareholders, they will now be caught by the TOAA rules.
Are there any exceptions?
Where the purpose of the transfer was not tax avoidance or was made for commercial reasons, exemptions do apply, and you should speak to an expert.
Please find further details regarding the changes here.
Contact us
If you are affected in any way by these measures and you would like to discuss this further, please don’t hesitate to me or your usual Mercer & Hole contact.
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