Finance Bill: Changes to Transfer of Assets Abroad provisions
Changes announced in the Budget will expand number of structures affected by transfer of assets abroad provisions with retroactive effect
Changes will apply from 6 April 2024
Changes announced in the Spring Budget and included in the Spring Finance Bill will reverse a recent Supreme Court ruling on the Transfer of Assets Abroad (TOAA) transferor provisions and expand the provisions to include transfers made by close companies. The changes will have a retroactive effect and apply to income arising to affected structures from 6 April 2024.
Broadly, the TOAA provisions treat income as arising to an individual where that individual has made a transfer of assets, as a result of which, income becomes payable to a person abroad and the individual has power to enjoy that income.
Historically, HMRC have sought to argue that where a close company makes a transfer and an individual or several individuals have a controlling interest in that company, they should be treated as ‘quasi-transferors’ and potentially taxable on an amount equal to that income. In November 2023, the Supreme Court ruled in the HMRC v Fisher and another case that where a company had made a transfer, the wording of the legislation was not sufficiently broad to allow the shareholders to be treated as quasi-transferors, regardless of the size of their shareholding. This effectively meant that where companies made transfers overseas, their shareholders would not be taxable under the TOAA provisions.
Measures announced at the Spring Budget now reverse this decision, such that a transfer made by a close company may be treated as though it is made by individuals with a ‘qualifying interest’. A qualifying interest is very widely defined and includes all participators in close companies, including shareholders and loan participators. However, those who can show they are not directly or indirectly involved in the decision making of the company are excluded.
For participators who are ‘involved’, there is a purpose test (‘the avoidance condition’) which must also be met – for the provisions to apply tax avoidance must be one of the purposes for which the transfer was carried out. Even if this is the case, it may not apply if the individual can show that they objected to the transfer. However, this may be difficult to prove retroactively, particularly for transfers that took place some time ago or involved those with minority shareholdings.
Similar amendments are being made to treat those with a qualifying interest as transferors where a close company makes a transfer and the individual later receives a capital payment under the TOAA provisions.
Although the rules are designed only to reverse the decision in the Supreme Court, it appears that the provisions may actually be widened for companies which have made or are making transfers to which TOAA might apply.
This is a complex area of UK tax legislation and specialist tax advice should be sought. Please contact the authors or your usual KPMG in the UK contact to discuss further.
