INTM603000 - Transfer of assets abroad: Exemptions from charge: Avoidance purpose exemption - taxation

The charging provisions are designed for the purpose of preventing the avoiding of liability to income tax by individuals. The exemption provisions on the other hand refer to the purpose of avoidance of liability to taxation, which is a much wider concept.

Taxation is defined as covering any revenue for which HMRC is responsible for collecting. This includes taxes, duties and National Insurance contributions: ITA07/S737(7).

Although earlier legislation did not include a definition of ‘taxation’, the term has always been taken to have a broad meaning. This was confirmed in the Courts in the case of Sassoon v CIR (25 TC 158) where Scott LJ in his judgement said:

In my view the nature of the proviso, instead of requiring a strict interpretation of the word ‘taxation’ in favour of the taxpayer, calls for a liberal interpretation in favour of the Crown. The draughtsman no doubt had in mind to cover what he would have called all bona fide transfers, that is to say transfers which would be regarded by the Revenue as not made for any fiscal purpose which they would regard as improper. The word ‘taxation’ is a short expression of such an idea and I think a happy one. Death duties, National Defence Contribution, perhaps other taxes or duties would all be within the Revenue’s mind in deliberately choosing the wide word ‘taxation’, in order to make sure that their concession of transfers for other purposes should not be used to deprive the Revenue of other taxes than income tax and Sur-tax.

The Sassoon case also established that ‘taxation’ meant UK taxation. If it is intended to avoid foreign tax and only foreign tax is avoided, the transfer of assets provisions will not apply.

In the First-tier Tribunal case of Fisher & Others v HMRC ([2014] UKFTT 804), one of the issues considered by the tribunal was whether the avoidance purpose applied where a UK bookmaker had transferred its telebetting business to a company in Gibraltar. In the context of this case, the Tribunal judge found the transfer had the purpose of avoiding betting duty and ruled that the exemption did not apply for this reason.

The Fisher case proceeded to the Upper Tribunal ([2020] UKUT 0062 (TCC)) where the question of whether betting duty fell within the scope of the word “taxation” was addressed once more in these terms at paragraph [136] of the court’s decision:

Is betting duty “taxation”?

136. In the light of the comments of the Court of Appeal in Sassoon, we have no hesitation in confirming that it is. Whilst specifically addressing the particular submission that “taxation” was limited to income tax and surtax, Scott LJ commented that in context (similar to that of the present case) a “liberal interpretation in favour of the Crown” was required for the word “taxation”. We see no reason why that liberal interpretation should not extend to betting duty. The fact that betting duty would at the time have been under the care and management of the Commissioners for Customs and Excise and not the Commissioners for Inland Revenue does not affect this view.

This further emphasises that the definition of taxation for the avoidance purpose exemption has a wide meaning.