Are individual shareholders 'transferors' for the purposes of the UK's transfer of assets abroad regime? An important ruling is welcome news for many individuals and company owners considering transferring assets to The Bahamas to minimise tax charges. The experienced corporate lawyers at award winning firm ParrisWhittaker supports directors and shareholders seeking to restructure and save money.
The Bahamas is, given its favourable tax environment, a popular jurisdiction for wealthy individuals and companies in other countries wanting to deposit money and other assets. However, the UK's 'transfer of assets abroad' regime is, like many other jurisdictions, designed to catch offshore tax avoidance arrangements by making transfers for the purpose of the income becoming payable to someone abroad.
Where the UK's Revenue & Customs takes the view that the transferor has known or suspected links to a tax haven, such as The Bahamas, it will undoubtedly investigate their tax affairs. This is what happened in a case that culminated in a notable ruling that went against the UK tax authorities.
The rules are complex, but in simple terms the relevant rule focuses on who in fact has 'power to enjoy' the income.
What happened in Fisher1 ?
In 2000, the directors of a family-run company transferred part of their betting business to Gibraltar, a jurisdiction in which they already owned an offshoot company. The directors were also the companies' shareholders. The tax authorities issued tax assessments on the directors for the accounting years subsequent to the transfer on grounds they had power to enjoy the income of the Gibraltar-resident company.
At issue for the courts was whether the transfer fell foul of the transfer of assets abroad regime. One of the three directors won in the appeal court, but the other two lost and took their case to the Supreme Court which found in favour of all the directors.
A key issue was whether the directors were the transferors for the purposes of the rules.
The Supreme Court decided they were neither singly nor collectively the transferors of the betting business for the purposes of the tax rules. On their trust construction, the rules do not apply to an individual in relation to a transfer made by a company in which they are a shareholder, regardless of the size of their shareholding. Rather, they are limited to charging 'individuals' who make such a transfer.
Further, the transfer was a bona fide commercial transaction: the company itself was a bona fide company which had been trading for many years.
How can we help?
The ruling is good news for individuals, including company director/shareholders who want to mitigate their potential tax liabilities by transferring money and assets to The Bahamas and other tax havens. However, caution should be exercised to avoid inadvertently falling foul of tax avoidance rules in the country from which the transfer was or is to be made.
Footnote
1HMRC v Fisher [2023] UKSC 44
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
