A family of taxpayers have finally won their tax case after ligating the case all the way to the Supreme Court (SC). The case concerned the transfer of a tele-betting business from the UK to Gibraltar and saw the taxpayers facing extremely large tax bills.
The family, the Fishers, had established a UK company (SJA) to hold the betting office business of Stan James back in 1988. Toward the end of the ‘90s tele-betting began to rise and it was noted that gaming duty was 1% in Gibraltar as compared to 6.75% in the UK at the time. Initially the UK company set up branch in Gibraltar and ran the tele-betting business through the branch but eventually the family set up a new Gibraltarian company (SJG). SJA then transferred the business of its Gibraltarian branch to the SJG. It was this transfer the case revolved around. At the time of the business transfer the shareholders of both SJA and SJG were the Fishers.
HMRC looked to tax some of the Fishers on the income that SJG had earned using the tax avoidance legislation known as Transfer of Assets Abroad (TOAA). This legislation can be quite punitive and will tax UK residents on transfers of income generating assets transferred outside of the UK. This legislation is only applicable to natural individuals and not corporate bodies such as companies.
The SC found that the Fishers did not transfer the assets abroad, rather SJA did. This was clear in law and fact. The Fishers, while shareholders in SJA and SJG could not have the transfer attributed to them as the legislation did not detail how shareholders could be considered ‘quasi-transferors’, where tax legislation can be quite specific on the tax treatment of shareholders, for example the close company rules. While deciding the case, the SC also confirmed that only transferors can be subject to the punitive charges and non-transferors the less punitive charges under a differing section, there was no scope to extend the charge to non-transferors.
The decision can be found at: Commissioners for His Majesty’s Revenue and Customs (Respondent) v Fisher and another (Appellants) – The Supreme Court
This is a helpful case as it helps resolves who is subject to the punitive TOAA charges. HMRC’s case had looked to apply punitive tax charges but the SC highlighted the Stan James business was not a sham. The SC pointed out that they thought it would still be difficult to transfer assets abroad by inserting a UK company in a chain of transactions as other parts of the tax legislation would be activated.
Please contact us if you have any questions on transfers of assets abroad. It is important to note that the legislation is only effective if the transferor is UK resident at the time. The above case highlights that HMRC can overreach when trying to impose tax on UK resident individuals.
