In HMRC v Jonathan Hitchins & Ors [2024] UKUT 00114, the Upper Tribunal (UT) found that the First Tier Tribunal (FTT) was entitled to direct HMRC to issue closure notices. HMRC’s enquiries amounted to a ‘fishing expedition’. 

Fishing expedition

  • In 1999, Robert Hitchins settled shares into an Offshore trust giving it a 100% indirect holding in a successful company, ‘RHG’.
  • Robert’s sons, Jonathan, Jeremy and the late Stephen Hitchins were directors of RHG.
  • In 2003-04, RHG paid a £40m dividend.
  • Believing that the three brothers were beneficiaries of the trust, HMRC opened enquiries into their tax returns on various dates between October 2014 and January 2022, covering tax years between 2012-13 and 2019-20.
  • The focus of HMRC’s enquiries was whether the £40m dividend and its onward payment gave rise to an Income Tax liability for any of the brothers under theTransfer of Assets Abroad (TOAA)legislation.
  • During HMRC’s enquiries, six Schedule 36 information notices were issued. All of these were withdrawn or successfully appealed.
    • Two further information notices under s.748 ITA 2007 were issued after HMRC’s officer “had become frustrated with the Schedule 36 process”, including the fact that the taxpayer had rights of appeal.
  • The brothers applied to the First Tier Tribunal (FTT) to direct HMRC to issue Closure notices.

The FTT found that HMRC could not show that there were reasonable grounds for refusing the applications for closure notices. It concluded that:

  • The £40 million distributed from RHG had been appointed by the settlement to a beneficiary, or beneficiaries, other than the brothers.
  • There was no evidence to indicate that the funds had been transferred to or for the benefit of the brothers, or that they had received any undisclosed benefit.
  • HMRC’s enquiries as to whom the dividend was appointed amounted to a ‘fishing expedition’ and had gone on far too long.
  • HMRC had unreasonably protracted their enquiries, which had been conducted to a point where it was reasonable to make an informed judgment.

HMRC appealed to the Upper Tribunal (UT), which found that:

  • Where, as it did, the FTT correctly states an applicable legal principle, there is a presumption that it applied those principles correctly unless the contrary is apparent. To conclude otherwise would be nit-picking.
  • The FTT had made an evaluative decision in the light of all the relevant evidence, balancing the various factors, concluding that HMRC's enquiry had been unduly prolonged and should be closed.
    • There was no doubt that HMRC’s mistaken view of the facts prolonged the enquiry, even though the FTT reached its decision without considering the reasons for the delay.
    • The view that the enquiry had gone on for too long was one which the FTT was entitled to reach in its overall evaluative judgment as to whether the enquiry should be brought to a close.
  • There were no errors of law in the FTT’s decision.

The appeal was dismissed.

Useful guides on this topic

Closure notices
When does HMRC issue a Closure Notice? Can a taxpayer demand one? Are there appeal rights? 

Transfer of Assets Abroad
What are the TOAA rules? When do they apply? How is the tax charge calculated? Is there any defence against the rules?

Non-resident trusts
When is a trust non-resident? What are the UK tax implications of a non-resident trust? What are the UK tax implications for any beneficiaries? What are the UK administrative requirements for a non-resident trust?

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HMRC v Jonathan Hitchins & Ors [2024] UKUT 00114