Clause 22 makes changes to ensure that individuals cannot use a company as a device to bypass anti-avoidance legislation, known as the transfer of assets abroad provisions. Those provisions are designed to prevent individuals from transferring ownership of income-generating assets, such as real estate or stocks, to an overseas individual or entity while still benefiting from the income that the assets generate. The provisions prevent the moving of assets into offshore structures outside the scope of UK taxation being a simple tax avoidance route for UK residents.

The clause has been introduced following a Supreme Court decision. Prior to the decision, HMRC considered that shareholders and directors who controlled a company could transfer an asset and were therefore in scope of the transfer of assets abroad provisions. However, the Supreme Court decision means that a shareholder cannot be determined as a transferor, which therefore opens up a loophole that can be exploited by shareholders transferring assets abroad via a close company to avoid UK tax. A close company is a company with five or fewer participators, usually shareholders or directors, who have ownership or control over the business.

The changes made by the clause will introduce a provision that deems an individual as the transferor where they are participators in a close company that transfers an asset to a person abroad in order to avoid UK tax. The amendment also applies to transfers by non-resident companies that would be treated as a close company if they were UK resident. The changes will have an impact on transactions only where the purpose of the transfer is to avoid tax and will not have an impact on transfers that are genuine commercial transactions. The changes will apply to income that arises after 6 April 2024, regardless of when the transfer took place.

In situations where multiple shareholders are involved in the transfer of an asset, any resulting tax charge will be apportioned between those individuals in proportion to their respective shareholdings. Further details will be provided in HMRC guidance. The measure is expected to affect a small number of individuals a year and will raise about £15 million in tax revenue over the forecast period.

This change was anticipated by external groups and demonstrates that the Government are quick to crack down on tax avoidance loopholes. This clause prevents tax avoidance by ensuring that individuals cannot bypass anti-avoidance legislation by using a company to transfer assets abroad while still benefiting from the income they generate. I therefore commend the clause to the Committee.