INTM602680 - Transfer of assets abroad: Exemptions from charge: Individual satisfies an officer of HMRC

When considering whether an individual comes within the conditions of one of the exemptions from charge under the transfer of assets provisions, the onus is on the individual to satisfy an officer of HMRC that the conditions for the exemption in question are met. The individual who is the subject of the potential charge will normally be in possession of all the facts needed to demonstrate how the conditions for exemption are met. They will have needed to have considered them in deciding whether the exemption is due when completing their self-assessment tax return. This will apply equally to an individual who is claiming exemption from the benefits charge as well as individuals claiming exemption from the income charge.

If the individual is relying upon the avoidance purpose exemption, the individual must “prove a negative” as Lord Denning once put it: Philippi v CIR (47 TC 75). There is more about purpose at INTM602960.

The genuine transaction exemption looks first at whether the European Union treaty freedoms are engaged and, if they are, then whether the transactions are genuine. What constitutes a genuine transaction is set out in the legislation and this is considered further in INTM603100 onwards.

The individual as possessor of the evidence, information and documentation supporting their case for exemption may be called upon to supply it. Such evidence may include copies of advice given by professional advisers if relevant to the exemption being claimed.

The evidence required will depend on the exemption being claimed and the circumstances and complexity of the situation. It is for the individual to determine the evidence which they consider appropriate to support their case. Examples of the type of evidence that HMRC might expect include:

  • the facts of what transactions have taken place that would otherwise lead to either an income or benefits charge
  • the income in respect of which a charge would otherwise arise
  • the reason for each transaction detailed
  • the aims and objectives intended to be achieved by the action taken
  • the actual outcomes of the transactions detailed.

See INTM602800 where the relevant transactions are post-4 December 2005 and the avoidance purpose exemption is in point.

See INTM603100 onwards for further details where the claim relates to the genuine transactions exemption.

Officers of HMRC should seek information which helps them to determine the genuine commercial nature of transactions, their real purpose, and where appropriate whether they are genuine transactions. They should expect an individual who is entitled to the exemption to assist them in this as officers are not in a position to be prescriptive as to what evidence is required; they can have no knowledge of what information or documentation may be available. It is important to establish the facts and review all documentation that supports them. A reluctance to supply relevant and persuasive information is likely to be a pointer to the exemption being denied. Officers may, of course, require information relating to a tax charge.

Authority for this view in relation to the purpose test can be found in the case of Corbett’s Executrices v CIR (TC 25 314) where Scott LJ said, referring to what is now the avoidance purpose exemption legislation:

it does not call upon the Commissioners of Inland Revenue to establish the existence of any intent in the taxpayers mind to avoid liability to income tax” and “That provision allows the taxpayer to escape from liability attendant upon the specific consequences, if, but only if, he proves to the satisfaction of the Special Commissioners that some other object was his main purpose. In other words, the onus is on him; and in the present case the Special Commissioners where not satisfied that the appellants had discharged it.

Similarly, in the case of Philippi v CIR (47 TC 75) Lord Denning said:

we do not look at the main purpose of the person making the transfer, we look at all the purposes which he may have had. The taxpayer must prove a negative. In this case the son must prove that the father did not have as one of his purposes in making the transfer the object of avoiding United Kingdom taxation, including not only income tax and surtax but also estate duty.

Further details of what may be required in respect of the genuine transactions exemption are included in INTM603100 onwards.

It is often the case that where transactions have taken place that result in a potential liability under the transfer of assets provisions, professional advice will have been taken in relation to the transactions. It is sometimes suggested that such advice cannot be disclosed to HMRC because of legal and professional privilege. More is said on this in the section on information powers from INTM603800 onwards, but there is no specific restriction on the information that an individual can provide to demonstrate that the exemption is due and they can be expected freely to provide it. Where an individual chooses to hold back particulars that may contain material evidence about transactions that would otherwise result in a charge to tax, it may well lead the officer of HMRC to conclude that the conditions for exemption are not met.

Where all the facts of a case are taken into consideration there are three potential outcomes:

  • the facts support the contention that the conditions are satisfied
  • the facts do not satisfy the conditions for exemption
  • there is doubt or difficulty in reaching a conclusion.

Where on the facts of the case the conditions are met, the exemption will be due.

In cases where

  • the facts do not support the exemption, or
  • there is doubt, or
  • difficulties arise,

the case should be referred to Personal Tax International, Liverpool before determinations or closure notices are issued (see INTM604440). See INTM604320 regarding the working of cases involving the transfer of assets provisions.

However, if a tax year is about to go out of date for assessment, and an assessment needs to be issued to protect HMRC’s assessing position, this should be done. Appeals against decisions made by officers of HMRC are to go to the tribunal (see INTM604100 onwards).