INTM600800 - Transfer of assets abroad: The income charge: The individual - multiple income charges

In circumstances where there is a choice of persons who can be considered to be the transferors in charging the income, then the income is apportioned on a ‘just and reasonable’ basis between them as referred to in ITA07/S743(2).

This has not always been the position.

In CIR v Pratt (57 TC 1), the three respondents owned 29% of a company’s share capital between them. There were 15 other shareholders and 5 other directors. An avoidance scheme was established which included a number of offshore companies and two offshore trusts: one of which was a family discretionary trust. Each of the respondents received £2,000 and was assessed to tax under what was ITA52/S412 (now ITA07/S720). Walton J dismissed the Revenue’s appeal on the grounds that it was not possible to do otherwise in this case, as there was a plurality of transferors whose respective interest could not be separated out.

He accepted that in the House of Lords’ decision in the case of Vestey v IRC (3WLR 915) what is now ITA07/S720 could only lead to a charge to tax on the transferor, but that an individual could come within the charge if they ‘procured’ the transfer. He also accepted that there could be multiple quasi-transferors, but only to the extent that an identifiable portion of the asset transferred could be attributed to a particular transferor. In the absence of such identifiable portions ITA52/S412 did not provide any means to arrive at an apportionment, or the authority to tax it, and in the absence of any legal basis for such action the section could not apply.

FA81/S45 was enacted to provide for the apportionment of income.

HMRC’s practice where the same assets are transferred by several individuals is to assess the transferors in proportion to their shares of the assets transferred. For example, where shares of a UK company are held by three individuals in the proportions of 40%, 40% and 20%, and there is a liability under ITA07/S720 in respect of an overseas person to which the shares are transferred, the liability is assessed on each of the three individuals in proportion to their respective holdings.

Following the introduction of FA81/S45, the issue was considered in the case of Commissioners of HMRC v Peter Fisher and Others ([2021] EWCA Civ 1438) which involved the transfer of a tele-betting business which was found to be procured by multiple transferors. The relevant ToAA section being referred to in this case was ICTA88/S744 which is not identical to ITA07/S743. In the Fisher case, it was said that the reason ICTA88/S744 was enacted was to cover this very situation whereby the income of a person abroad could be apportioned in recognition of the relevant interests of multiple transferors. The Court of Appeal commented at paragraph [69] of their judgment:

The [Upper Tribunal] noted that section 744 could apply where the same income could be the subject of charges under both [the ToAA income charge] and [the ToAA benefits charge], but, whether or not the proponents of what has become section 744 had that sort of overlap in mind, it is reasonable to assume that the provision was (also) intended to address the position of multiple transferors (and quasi-transferors).

An officer of HMRC must be satisfied, based on the facts of the case, that the apportionment of income to be taken into account between individuals is on a ‘just and reasonable’ basis (ITA07/S743(2)). Of course, taxpayers have the usual rights of appeal against decisions on this point, which are the jurisdiction of the Tax Tribunal (ITA07/S751).