Supreme Court decision on Transfer of Assets Abroad rules
The transfer of assets abroad rules are a series of anti-avoidance provisions which seek to remove any tax advantage that a UK resident individual might seek to obtain where assets are transferred so that income from those assets becomes payable to a person abroad (i.e. outside the scope of UK tax). The effect of the rules, where they apply, is to tax certain UK resident individuals as if they had directly received income of the person abroad.
The Supreme Court has now released its highly anticipated judgment in HMRC v Fisher and another [2023] UKSC 44, overturning the Court of Appeal’s decision and holding that the rules do not extend as widely as HMRC were arguing.
Facts
This case concerns members of the Fisher family, being Stephen, Anne, and Peter, who were shareholders in a UK company in the betting industry. As the company moved into tele-betting, it became possible for this part of its business to be carried on from Gibraltar where there was a lower rate of betting duty. In due course, the tele-betting business was transferred from the UK company to a Gibraltar company, also under the ownership of members of the Fisher family.
HMRC subsequently sought to assess the Fishers to UK tax on profits of the Gibraltar company under the transfer of assets abroad code on the basis that they had the power to enjoy the income of the Gibraltar company. The assessment was challenged on several grounds, most significantly that the transfer in this case was made by the UK company that had previously been carrying on the tele-betting business, and not by the individuals themselves.
The Tribunals and Court of Appeal
Before arriving at the Supreme Court, the case has been subject to varied judgements through the Tribunals and the Court of Appeal as follows:
- In the First-Tier Tribunal the substantive appeals were dismissed and it was held that the Fisher family should be regarded as “transferors” and subject to the transfer of assets abroad legislation (although Anne’s appeal was successful on a discrete point of EU law).
- The Upper Tribunal disagreed with the FTT and held that the legislation could not apply as none of the persons procured the transfer of the business in a personal capacity.
- In the Court of Appeal two of the three judges held that the individuals (again excluding Anne) were involved in the decision making of the business and were accordingly “quasi-transferors” for the purposes of the legislation.
The Supreme Court
The Supreme Court considered, firstly, whether – for the relevant part of the legislation to apply – the transfer of assets has to be made by the individuals who then has the power to enjoy the income of the person abroad (and who accordingly would be subject to tax on that income under the rules). On this point it decided that an individual can in fact only be subject to this part of the rules if he or she was the transferor.
Secondly, it considered whether an individual can be treated as a transferor by virtue of being a shareholder in a company which legally made the transfer. On this point, the Court decided that they cannot be so regarded, even if they are majority shareholders and/or directors of the company.
On the basis of the Court’s conclusions, the Fishers’ appeals were allowed.
Comment
This decision provides welcome clarity as to the extent of the transfer of assets abroad rules; whilst the rules are widely drafted – and whilst there are certain parts of the rules, not directly relevant here, which can extend to certain non-transferors – we now know that they are not as all-encompassing as HMRC had argued in this case.
The transfer of asset abroad rules are complex, and this decision does not touch on certain other difficult areas, such as the effect of EU law or the operation of the “motive defence”, on which further cases may be needed to provide clarity in the future.
Please do get in touch with our tax experts at Moore Kingston Smith if you would like to discuss the implications of this judgement.