In Anne Concepta Moran v HMRC [2025] TC09521, the First Tier Tribunal (FTT) found that a taxpayer was liable to Income Tax under the Transfer of Assets Abroad (ToAA) legislation due to her rent-free occupation of a house settled in an offshore trust by her late husband.
As of 30 September 1994, Vincent Moran (VM) was domiciled in Ireland, resident for tax purposes in Guernsey, and Deemed domiciled for IHT purposes in the UK.
- VM Incorporated Namib Limited (Namib), a Jersey resident company, on 12 July 1994.
- Watcher Limited (Watcher), also Jersey resident, was incorporated on 15 February 1995.
- On 27 February 1995, VM established a Non-UK resident discretionary trust called 'The Blest Trust' (Blest), settling all of Watcher’s shares.
- The beneficiaries were VM, his spouse Anne Moran (AM), and their three children.
- On 3 March 1995, VM transferred the beneficial ownership of Namib to Watcher for no consideration.
- Between July 1995 and September 1997, VM settled additional property on Blest of around £105,000.
- In December 1995, VM transferred the freehold of ‘Highlands’, a residential dwelling-house, purchased in 1987, to Namib for £500,000. The purchase price remained outstanding as a non-interest-bearing loan.
- From the year ending 31 March 2000 onwards, Watcher made loans to Namib.
- A significant proportion of the sums loaned was spent on Highlands; Namib had no income-producing assets of its own, so it could not pay for the maintenance or upkeep of Highlands without the Watcher Loans.
- Loans were made annually, without exception, from 2011 to 2019.
- In October 2001, VM settled the Castletown Trust, with himself, AM and their three children as beneficiaries.
- Watcher transferred ownership of Namib to the Castletown Trust in the same month.
- VM died in August 2002.
- Highlands was professionally valued at £2.7m in 2022. The agents gave the view that it would attract an annual rent of £63,000.
- HMRC raised assessments and Closure notices in respect of the tax years 2012-13 to 2019-20 (excluding 2016-17), charging AM £163,414 in Income Tax.
- This was on the basis that the Transfer of Assets Abroad (ToAA) rules applied by virtue of AM receiving a benefit from living, rent-free, in Highlands, under a licence to occupy granted by Namib in April 2001.
- AM Appealed to the First Tier Tribunal (FTT) on the grounds that:
- The ToAA rules did not apply: the accommodation benefit was not provided out of assets available for the purpose as a result of a relevant transfer, or one or more associated operations.
- The ‘motive defence’ applied.
- The Treaty on the Functioning of the European Union (TFEU) provided an exemption due to the operation of Article 63 in respect of the freedom of movement of capital.
Broadly, the ToAA rules produce an Income Tax charge on a UK resident individual where assets have been transferred to a person abroad, and a UK individual retains the power to enjoy the income from those assets.
HMRC and AM agreed that for the purposes of the ToAA legislation:
- AM’s rent-free occupation of Highlands was a ‘benefit’.
- Income arose to Watcher, which was a ‘person abroad’.
The FTT found that:
- The monies transferred by VM to Watcher and/or Blest were ‘relevant transfers’ for the ToAA rules.
- Watcher made investments. As such, income arose to Watcher and/or the Blest trustees. The loans made by Watcher were made from that income.
- Highlands was made available to AM in the relevant years as a result of, inter alia, the maintenance and repairs being funded by income and assets in Watcher.
- The accommodation benefit included the provision of rent-free accommodation.
- Further, Highlands, built in the early 1900s, needed ongoing maintenance and repair. This was financed by the loans from Watcher and various payments from Namib (which also covered other expenses at the property).
- The loans from Watcher were ‘associated operations’ for ToAA purposes. This phrase was widely drawn.
- It was necessary to examine all the transactions, not just the sale of Highlands to Namib and the creation of the licence to occupy.
- The establishment of Namib, Watcher, Blest, and Castletown all had to be considered, as well as the transfer of Watcher's shares into Blest, the transfer of Namib to Watcher and then to Castletown.
- The loss of tax was brought about at least carelessly, as there was no mention of the accommodation benefit on AM’s Self Assessment returns. HMRC’s discovery was valid.
- The ToAA motive defence was not available.
- One or more of the transactions were more than incidentally designed for the purpose of avoiding Income Tax.
- No exemption under the TFEU was available as there was no evidence that capital moved from the UK to Jersey.
- Furthermore, there was no evidence of the source of the money to fund Watcher and Blest.
Useful guides on this topic
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?
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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