Transfer of assets abroad

With any, or one, more upcoming Revenue initiatives expected to focus on offshore assets and with many of these involving earlier asset transfers, Burns and another v Revenue and Customs Commissioners [2009] STC 165 serves as a timely reminder of the rigours of ITA 2007, s. 720 (previously, ICTA 1988, s. 739).

Inter alia, these provisions seek to impose a personal tax liability on the income arising on assets transferred to third parties, such as foreign companies or trustees who are not themselves subject to the UK taxes. Liability arises to the UK resident transferor in a tax year in which the income arises on the transferred assets in question and regardless of whether the transferor was so resident when the actual transfer took place.

Once a transfer of assets is established, chargeability on the individual transferor exists unless they can show they have a prescribed defence(s). A defence depends on evidencing the purpose(s) of the transfer of assets, and its commerciality or absence of predominant tax avoidance motive, with the  burden of proof falling on the taxpayer.

Burns serves to show not only the inarguable merit of conducting a robust examination of the law and the facts prior to the transfer of assets taking place, but also the need to be able to return to that evidence many years hence.

On the first of these points, the court was less than impressed with the defences offered, describing them as dubious. There may arguably be more merit in parts of the argument than the court was prepared to accept but, once the credibility of the taxpayers’ motives was called into doubt, they were up against it.

On the second part, it is noteworthy that the salient transfers of assets took place in 1980 and 1982. The Revenue raised assessments twenty years later and the taxpayers’ appeals against those assessments were heard almost thirty years after the transfers in question took place. Whilst it is rare for a timeframe of nearly three decades to elapse, taxpayers need to appreciate that the onus is on them to evidence their defence(s) and for them to be warned that there is no urgency to act imposed on the Revenue.

In Burns, the taxpayers and their parents were in receipt of proper professional advice at the time of the transfers and it is fair to conclude that, except for the apparently bizarre taking of assets absolutely by the taxpayers rather than them being re-settled onto trust, it was simply a case that the advisers could only achieve so much with the little they had to work with. Almost 30 years later, the same could be said of the material that leading counsel had at their disposal when arguing the taxpayers’ case.

With plenty of others not bothering with advice but merely hiding assets away in offshore companies and trusts with a view to worrying about it later if they got caught, the odds are going to be against them as the Revenue proceed to unpick these offshore structures.