Transfer of assets abroad – Upper Tribunal waits for Court of Appeal to decide where to draw the line

05 January 2021

The decision of the Upper Tribunal in the case of The Commissioners for HMRC v Andreas Rialas has been published.

In its decision, the Upper Tribunal has effectively linked the outcome of the Rialas case (see our article on the First-Tier Tax Tribunal decision) to that of Fisher v The Commissioners for HMRC where the Court of Appeal will hear HMRC’s appeal against the decision of the Upper Tribunal later this year.

The Upper Tribunal declined to rule on HMRC’s claim that the First Tier Tribunal in Rialas was also wrong in determining that applying a charge to income tax under the transfer of assets abroad regime to Mr Rialas would infringe his EU rights to free movement of capital. In part this was in order to reach a swift judgment on the core issue so as to enable a co-ordinated appeal by HMRC of the decision of the Upper Tribunal in Rialas with its appeal of the decision of that same court in Fisher.

In essence, the Upper Tribunal determined that the core issue in dispute in Rialas was exactly the same as the core issue in dispute in Fisher (hence the court’s desire to facilitate a co-ordinated appeal on the point to the Court of Appeal), namely when should an individual who has not personally made a transfer of assets abroad be treated as a transferor for the purposes of the transfer of assets abroad regime?

In Fisher the individuals in question were the shareholders in the company which made the transfer, whereas in Rialas the transfer had been made by another individual to a trust settled with a nominal amount by Mr Rialas and funded by a loan from a third party but the question which the Court of Appeal will be asked to determine in relation to both cases is: where do you draw the line? HMRC’s position (and we are aware of other cases where they have made the same argument) is that where an individual has been involved in the creation of a structure, he or she should be treated as the transferor. The Upper Tribunal has rejected this argument. It remains to be seen what the Court of Appeal thinks.

The issue is whether the Respondent, Mr Rialas, could be made liable to income tax under that legislation by virtue of putting in place arrangements under which shares in a UK company were transferred, not to him, but to a non-UK resident company whose shares were owned by an offshore discretionary trust.