INTM602940 - Transfer of assets abroad: Exemptions from charge: Avoidance purpose exemption - the reasonableness test

INTM602800 introduced the fact that both specific conditions to be satisfied for an exemption to be due now contain the express words:

‘it would not be reasonable to draw the conclusion, from all the circumstances of the case’.

These words link directly with the requirement that the individual ‘satisfies an officer of Revenue and Customs’. The aim of this procedure is not to put discretion entirely in the officer’s hands, but to ensure the necessary information and explanations are available, leading to a decision which is clear and may (if appropriate) be tested on appeal.

This approach draws heavily on that taken in the past by the fact-finding tribunal and indeed that taken in the past by HMRC. It now makes it unambiguously clear that the individual must supply the necessary information, appropriate to the circumstance, in order to enable HMRC to test the reasonableness of the conclusion that the condition is met.

Thus, although the individual must satisfy HMRC on the test of reasonableness, this does not mean that only the view taken by HMRC has any validity. The issue is whether the circumstances are such that a reasonable person, properly considering all the facts of the case, could conclude that the test was met. Any decision on this by HMRC can be reviewed on appeal by the fact-finding tribunal, who would be able to decide on the facts if the individual met the terms for exemption under the reasonableness test.

Therefore, it is clear that it will not be possible for HMRC to draw a reasonable conclusion that the condition is met where, for whatever reason, the individual does not provide a full, factual account along the lines indicated at INTM602680.

This test, although looking at the relevant transactions, ensures that ‘all the circumstances of the case’ are to be taken into account in deciding whether exemption is due. The use of this term requires careful consideration of all the evidence including, for example, factors such as:

• the individual’s stated intentions
• any other evidence of the individual’s purposes and intentions
• the intentions of any other parties carrying out relevant transactions
• the actual or expected outcome of the transactions
• a comparison of the UK tax payable by the individual or any other person with what the situation may otherwise have been if the transactions had not taken place or the income had arisen directly to the individual.

The above list is not intended to be exhaustive, but illustrative of the extent to which surrounding evidence needs to be considered when having regard to all the circumstances of the case.

Further, it should be noted that it is all the circumstances of the case that are being considered, not all the circumstances of the relevant transactions.

For example, if an individual has at other times taken part in tax avoidance schemes and offers no evidence of the purpose of the relevant transactions, it is probable that from ‘all the circumstances of the case’ the individual would be unable to satisfy HMRC that it would be reasonable to draw the conclusion that the condition for exemption was met.