In the Autumn Budget 2024, the Government issued a rather unusual Call for evidence on 'Tackling off-shore anti-avoidance'. The premise sounds simple: to understand the complexities of the Settlements legislation, the Transfer of Assets Abroad legislation and Capital Gains Tax in relation to offshore avoidance.
The Government announced that it intended to review the Transfer of Assets Abroad legislation back in July. It says that it is not anticipating any changes to the offshore anti-avoidance legislation before the start of the 2026 to 2027 tax year.
Taxpayers, tax advisers and the courts have struggled for many years to interpret what often seems a tangled web of anti-avoidance legislation. It appears that the new Government is determined to make reforms and these, in turn, will strengthen its position in reforming the taxation of non-domiciled individuals.
The call for evidence is looking at three key topics and how they apply to non-residents and persons moving offshore:
- Settlements legislation.
- The Transfer of Assets Abroad legislation.
- Capital Gains Tax.
The Settlements legislation charges Income Tax on certain income treated as the income of a settlor of a settlement (or sometimes a close family member of the settlor). It applies in various circumstances, including but not limited to both UK resident trusts and non-resident trusts.
The Settlements legislation applies to:
- Settlements in which the settlor has retained an interest.
- Settlements on minor children or stepchildren of the settlor who are neither married nor in a civil partnership.
- Capital sums paid to a settlor by trustees of a settlement.
- Capital sums paid by a body corporate connected with the settlement.
- Benefits that are provided out of protected foreign-source income, and onward gifts.
The legislation can apply in various situations including those involving individuals, companies and partnerships. For the purposes of the legislation, the definition of a ‘settlement’ includes any disposition, trust, covenant, arrangement or transfer of assets. A settlement may include a series of steps or transactions, which taken together, are regarded as an arrangement.
The Transfer of Assets Abroad (ToAA) rules impose a charge to Income Tax on UK resident individuals when, by means of a transfer of assets, income becomes payable to a person abroad (a relevant transfer). The individual who made the transfer either:
- Has the power to enjoy the income arising.
- Receives, or is entitled to receive, a capital sum which is connected with the transfer.
The ToAA legislation can also apply where a UK resident individual receives a benefit as a result of a relevant transfer.
There is an exemption from charge when either the avoidance of tax was not one of the purposes of the relevant transactions (known as the ‘motive defence test’), or all the relevant transactions were genuine commercial transactions (sections 736 to 742A of ITA 2007).
CGT rules for Non-residents: the main personal tax CGT offshore anti-avoidance rules are at:
- Section 86 of the Taxation of Chargeable Gains Act 1992 (TCGA 1992), attributes gains accruing to a non-resident or dual resident settlement to a UK resident settlor where the settlor has an interest in the settlement.
- Section 87 of, and Schedule 4C to, TCGA 1992, which deem that gains accruing to non-resident settlements accrue to UK resident beneficiaries when they receive a matched capital payment
Section 3 of TCGA 1992 also attributes gains accruing to non-resident close companies to company participators where the gain is connected to avoidance. Under section 3A of TCGA 1992, gains accruing on the disposal of an asset are treated as ‘connected to avoidance’ unless it can be shown that neither the disposal nor acquisition of that asset formed part of a scheme or arrangements with a main purpose of avoiding CGT or Corporation Tax (known as the ‘motive defence test’).
The review focuses on specific areas of legislation but the Government welcomes wider comments and recommendations on other areas of personal tax offshore anti-avoidance legislation which could be consulted on as part of this review.
Consultation questions:
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Question 1: What could be done to simplify this legislation?
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Question 2: What could be done to remove inconsistencies and align this legislation?
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Question 3: What are your views on how the motive defence tests are applied and what areas of these tests could be improved?
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Question 4: Do you have any suggestions on how the government should approach personal tax offshore anti-avoidance legislation in these areas going forward?
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Question 5: Are there any other personal tax offshore anti-avoidance provisions the government should consider as part of the consultation?
Responses can be provided by submitting this form to HMRC no later than 19 February 2025
Budget documents: Call for evidencePersonal Tax offshore avoidance
Useful guides on this topic
Settlements legislation
What are the settlement anti-avoidance rules? How do these rules catch some common family tax planning? What are the rules for spouses and other family members?
Transfer of Assets Abroad (ToAA)
What are the TOAA rules? When do they apply? How is the tax charge calculated? Is there any defence against the rules?
CGT & Non-Residents
This toolkit covers the key UK tax issues for non-UK resident individuals holding UK assets and property and working in the UK.
