The FTT recently ruled in favour of HMRC in the case of A Moran v HMRC [2025] UKFTT 540 (TC) (reported in Tax Journal, 30 May 2025), which provides valuable insight into the application of the transfer of assets abroad (TOAA) rules under ITA 2007 ss 731–733. It found that Mrs Moran (the taxpayer) was liable for income tax in respect of rent-free occupation of the ‘Highlands’ (the UK property in question). The decision reinforces the importance of evidence and intention in reliance on the motive defence as well as offering some guidance on how tribunals are approaching the concept of ‘benefit’ in TOAA cases.
Mr Vincent Moran (VM) purchased the Highlands in 1987, shortly after which Mr and Mrs Moran moved into the property, and the taxpayer has lived there since. In 1995, VM settled a discretionary trust called the ‘Blest Trust’ in Jersey. VM also incorporated Namib Ltd (Namib) and Watcher Ltd (Watcher), both Jersey-registered companies. In 2001, VM established the Castletown Trust in Jersey, and later that year, Watcher transferred Namib to the Castletown Trust. VM then transferred the beneficial ownership of Namib to Watcher and subsequently transferred the freehold of ‘Highlands’ to Namib, the property in which the taxpayer lived rent-free. HMRC assessed the taxpayer on the basis that this rent-free occupation constituted a taxable benefit under the TOAA regime.
The taxpayer argued that: TOAA did not apply; but if it did, the ‘motive defence’ applied; and under Article 63 of the Treaty on the Functioning of the European Union (TFEU), an exemption was available due to the movement of capital – all of which were dismissed by the FTT.
There are several key points arising from the ruling, as follows.
‘Benefit’ under TOAA: The FTT concluded that the TOAA provisions were engaged and that the taxpayer was taxable on the benefit received in the form of occupation of the property. Crucially, the FTT adopted a broad view of what the ‘benefit’ entailed, including not only the right to live in the house but also the enjoyment and maintenance of the property’s amenities, privacy and landscaping features that had been financed through the offshore structure. The FTT stated (at [146]):
‘not just being able to live there, in the sense of eating and sleeping, but ... includes being able to enjoy its amenities as a home, such as the indoor swimming pool, and the garden, all in privacy arising from the things which were done with the electric gates and the trees ...’
Motive defence: The FTT was not persuaded by the taxpayer’s argument that TOAA did not apply, or alternatively that the motive defence in s 739 and related provisions should apply, on the basis that there was no intention to avoid tax. While the structuring may have had several purposes, the FTT concluded that at least one purpose of the arrangement was tax avoidance and that this was more than merely incidental, stating (at [197]):
‘any one or more of the transactions were more than incidentally designed to avoid liability to taxation’.
Evidence: The taxpayer was unable to provide sufficient contemporaneous documentation or explanation to discharge the burden of proof. The motive defence is often cited but difficult to establish in practice. It requires precise and credible evidence that tax avoidance was not a primary or incidental purpose of the relevant arrangements. General assertions about family planning or asset protection, without a supporting paper trail, will rarely suffice, as shown in this judgment.
Associated operations: A key part of the FTT’s analysis was the classification of the loans from Watcher Ltd to Namib Ltd as ‘associated operations’ under s 719. These loans funded the maintenance and improvement of the property in which the taxpayer lived rent-free. The loans were considered a part of the wider TOAA structure, and the tribunal matched the income from the offshore structure to the UK benefit received.
EU law: The FTT also dismissed the taxpayer’s argument on Article 63 of the TFEU, stating that there was no movement of capital from the UK to Jersey.
Impact: This case provides valuable insight into the application of the TOAA rules. While the decision does not analyse TOAA legislation in detail, it does serve as a reminder of the importance of facts in such set ups. It also shines a light on the importance of substantial documentation to support the motive defence.
The FTT recently ruled in favour of HMRC in the case of A Moran v HMRC [2025] UKFTT 540 (TC) (reported in Tax Journal, 30 May 2025), which provides valuable insight into the application of the transfer of assets abroad (TOAA) rules under ITA 2007 ss 731–733. It found that Mrs Moran (the taxpayer) was liable for income tax in respect of rent-free occupation of the ‘Highlands’ (the UK property in question). The decision reinforces the importance of evidence and intention in reliance on the motive defence as well as offering some guidance on how tribunals are approaching the concept of ‘benefit’ in TOAA cases.
Mr Vincent Moran (VM) purchased the Highlands in 1987, shortly after which Mr and Mrs Moran moved into the property, and the taxpayer has lived there since. In 1995, VM settled a discretionary trust called the ‘Blest Trust’ in Jersey. VM also incorporated Namib Ltd (Namib) and Watcher Ltd (Watcher), both Jersey-registered companies. In 2001, VM established the Castletown Trust in Jersey, and later that year, Watcher transferred Namib to the Castletown Trust. VM then transferred the beneficial ownership of Namib to Watcher and subsequently transferred the freehold of ‘Highlands’ to Namib, the property in which the taxpayer lived rent-free. HMRC assessed the taxpayer on the basis that this rent-free occupation constituted a taxable benefit under the TOAA regime.
The taxpayer argued that: TOAA did not apply; but if it did, the ‘motive defence’ applied; and under Article 63 of the Treaty on the Functioning of the European Union (TFEU), an exemption was available due to the movement of capital – all of which were dismissed by the FTT.
There are several key points arising from the ruling, as follows.
‘Benefit’ under TOAA: The FTT concluded that the TOAA provisions were engaged and that the taxpayer was taxable on the benefit received in the form of occupation of the property. Crucially, the FTT adopted a broad view of what the ‘benefit’ entailed, including not only the right to live in the house but also the enjoyment and maintenance of the property’s amenities, privacy and landscaping features that had been financed through the offshore structure. The FTT stated (at [146]):
‘not just being able to live there, in the sense of eating and sleeping, but ... includes being able to enjoy its amenities as a home, such as the indoor swimming pool, and the garden, all in privacy arising from the things which were done with the electric gates and the trees ...’
Motive defence: The FTT was not persuaded by the taxpayer’s argument that TOAA did not apply, or alternatively that the motive defence in s 739 and related provisions should apply, on the basis that there was no intention to avoid tax. While the structuring may have had several purposes, the FTT concluded that at least one purpose of the arrangement was tax avoidance and that this was more than merely incidental, stating (at [197]):
‘any one or more of the transactions were more than incidentally designed to avoid liability to taxation’.
Evidence: The taxpayer was unable to provide sufficient contemporaneous documentation or explanation to discharge the burden of proof. The motive defence is often cited but difficult to establish in practice. It requires precise and credible evidence that tax avoidance was not a primary or incidental purpose of the relevant arrangements. General assertions about family planning or asset protection, without a supporting paper trail, will rarely suffice, as shown in this judgment.
Associated operations: A key part of the FTT’s analysis was the classification of the loans from Watcher Ltd to Namib Ltd as ‘associated operations’ under s 719. These loans funded the maintenance and improvement of the property in which the taxpayer lived rent-free. The loans were considered a part of the wider TOAA structure, and the tribunal matched the income from the offshore structure to the UK benefit received.
EU law: The FTT also dismissed the taxpayer’s argument on Article 63 of the TFEU, stating that there was no movement of capital from the UK to Jersey.
Impact: This case provides valuable insight into the application of the TOAA rules. While the decision does not analyse TOAA legislation in detail, it does serve as a reminder of the importance of facts in such set ups. It also shines a light on the importance of substantial documentation to support the motive defence.
