The Government has published a response to its call for evidence 'Personal Tax: Offshore Anti-Avoidance legislation'. It was clear from the responses that further consultation will be needed.
Background
In October 2024, HMRC published a call for evidence on 'offshore anti-avoidance legislation'. It looked at understanding and identifying areas where the personal tax offshore anti-avoidance rules could be improved or updated in respect of three key topics:
- Settlements legislation.
- The Transfer of Assets Abroad legislation.
- Capital Gains Tax.
The Settlement provisions are a set of anti-avoidance rules designed to stop individuals from avoiding tax by artificially diverting their income to other family members in order to take advantage of their unused tax allowances.
The Transfer of Assets Abroad (ToAA) rules produce an Income Tax charge on an individual who is resident in the UK where:
- There has been a transfer of assets and, as a result of the transfer and/or any associated operations:
- Income becomes payable to a person abroad.
- The individual can still enjoy that income, or receive or have entitlement to receive a capital sum or other benefits from the arrangements.
- It is reasonable to conclude that none of the defences apply e.g. that the transfer was on commercial terms and the main or one of the main motives behind the transfer was tax avoidance, or that the move does not interrupt the EU freedom of movement rules.
- The UK has now left the EU, and it will (in due course) need to consider and update domestic law and revisit the EU law defence to the ToAA.
Non-residents are subject to Capital Gains Tax (CGT) on the disposal of UK property.
- The Non-Resident CGT (NRCGT) charge applies to non-resident individuals, non-resident trustees, personal representatives of a non-resident deceased person and some non-resident companies disposing of UK property.
- Some assets are exempt from the NRCGT charge.
Responses
The consultation received 10 responses.
- Alignment is needed between the settlements legislation, the TOAA provisions, and the CGT provisions to simplify the application of the rules, improve certainty for taxpayers and provide clearer scope. Suggested areas include:
- Rules to ensure the same income or gain is not being taxed twice.
- Definitions of settlor-interested, close family member attribution and onward gift rules.
- Treatment of income and capital losses.
- Rules which govern the taxation of benefits or payments received from a structure.
- The motive defence applicable for TOAA and the approach taken for CGT.
- Divergence between the treatment of onshore and Offshore trusts.
- Application of rules to 'layered' structures and the difference of approaches taken between companies and trusts.
- It was highlighted that the motive defence tests are uncertain and complex. Specific issues:
- Difficulty in quantifying income.
- It is challenging to gather the necessary information and then apply UK tax rules, and dealing with tax years that do not align.
- Lack of clarity on what to disclose and how.
- Unclear definition for Condition B of TOAA.
- The requirement to consider very old transactions without the involvement of the taxpayer.
- Multiple 'cliff edges' within legislation that can create disproportionate and 'dry' tax charges.
- Application of differing sets of rules, meaning different rules are dependent on transaction timing.
Next steps
The Government will consider further how best to engage with relevant experts in shaping and taking forward further consultation in this area.
- An update is expected in the Autumn Budget 2025.
- Any changes to legislation are not expected to take effect before 2027-28.
Useful guides on this topic
Settlement anti-avoidance rules
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?
Non-resident CGT: UK property
How and when does Capital Gains Tax apply to non-residents owning UK property?
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?
External links
Consultation outcome: Personal Tax Offshore Anti-Avoidance Legislation Call for Evidence