Spring Budget 2024 – Fisher reversed

The supporting documents to the Budget announced that the Finance Bill 2024 will seek to ensure individuals cannot use a company to bypass anti-avoidance legislation, known as Transfer of Assets Abroad (ToAA) provisions, in order to avoid UK income tax. The changes will take effect for income arising to a person abroad from 6 April 2024.

This effectively reverses the decision in a recent Supreme Court decision – HMRC v Fisher [2023] UKSC 44.

The ToAA anti-avoidance rules have been in place since the 1930’s. The basic aim of the rules is to prevent someone transferring an income producing asset to an entity that is not resident in the UK to avoid UK tax.

There are two overlapping codes – the transferor and the non-transferor provisions. A transferor is broadly taxed on the income of the non-UK entity as if it were still theirs; the non-transferor is generally taxed on income if and when it is distributed to them.

In the Fisher case, a UK gambling business held by a UK-resident company was sold to a non-UK resident company to avoid betting duty. HMRC argued that the shareholders of the company were transferors, and that the transfer was made to avoid UK tax, and therefore the ToAA rules applied.

In the lower courts, the arguments on behalf of the taxpayer were that:

• the shareholders were not transferors because the legislation applied to individuals only,
• that minority shareholders were not transferors because they did not control the company, and
• that the motive defence applied.

The Supreme Court decided that the shareholders of a company should not be treated as a transferor where a UK company set up for commercial reasons transferred its trade to a person abroad.

The Supreme Court considered that if this created a gap in the operation of the legislation, it was for Parliament to close rather than the courts. Parliament now intends to do so to put the matter beyond doubt.

The Supreme Court had expressed the view that the non-transferor provisions would tax any benefits conferred on individuals out of the structure which meant that tax would not ultimately be avoided and that they did not consider that it would be possible in general to avoid ToAA by transferring income producing assets to a UK company and then making an onwards transfer to an overseas entity because other anti-avoidance rules would apply.

For transactions prior to 6 April 2024 which align with the Fisher case, it is worth considering whether there is a basis for resisting any attempt by HMRC to tax a shareholder under ToAA provisions.

If you have any queries arising from this or any of the other Budget updates, please contact any member of the Tax team.

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