The transfer of assets (TOA) abroad is one of the oldest statutory tax avoidance regimes that continues to apply. Due to the large number of amendments, it makes the TOA one of the most difficult for clients and advisers to be certain of its application. As a result, there have been many cases over the last few years which have gone onto the higher courts on key points including the scope of the transferor and the application of the motive defence.
If it were not for a legislative charge imposed, individuals would relatively easily avoid income tax by transferring assets abroad and reaping the benefits of the income produced by those assets. This result may well be attained by a transfer to an offshore trust, overseas company, or other offshore entity. As expected, there is a long-standing anti-avoidance legislation known as the transfer of assets abroad rules to deter and or nullify the tax advantage by imposing a charge to income tax.
In order for the tax charge to arise, there are a set of rules which must become operational. These are as follows:
- There must be a transfer (i.e., where the transfer of assets or associated operations income become payable to a person abroad)
- There must be a tax avoidance motive; and
- The income must be payable to a person abroad as a result either of the transfer or of associated operations (i.e., an operation of any kind effected by any person in relation to any of the assets transferred or the income arising from the transferred assets).
A person abroad is defined as a person who is resident outside the UK or an individual who is domiciled outside the UK.
Assets can include property or rights of any kind, incomes or accumulations of income including shares in or obligations of any company and or the aforementioned have been transferred to any person.
The transfer of assets abroad rules provides for three distinct income tax charges, whichever is appropriate to the circumstances, as follows:
- a charge on a UK resident individual with power to enjoy the income of the person abroad
- a charge where a capital sum is received by a UK resident individual in connection with the transfer and/or associated operations
- a charge on any benefits received by a UK resident individual (normally an individual other than the transferor), that are provided out of assets available because of any such transfer and/or associated operations.