The transfer of assets abroad code is the oldest piece of anti-avoidance legislation in daily use in the United Kingdom. HMRC records that it began as section 18 and Schedule 2 of the Finance Act 1936, was consolidated into sections 478 to 481 of the Income and Corporation Taxes Act 1970, then into sections 739 to 746 of the 1988 Act, and now sits as Chapter 2 of Part 13 of the Income Tax Act 2007. It has been renumbered three times in ninety years and it has never been narrowed by design.
That matters for European structures because the charging provisions do not ask whether the arrangement is artificial. They ask whether assets were transferred, whether the recipient is a person abroad, and whether a UK resident individual can enjoy the resulting income or has received a capital sum. A Dutch holding company with a resident board and a real balance sheet answers yes to all three. Whether tax is actually payable then depends on a defence, and over the last two years the defences available to a European structure have narrowed rather than widened.
What the code charges, and on whom
There are three charges. Section 720 charges income tax on income treated as arising to an individual under section 721, where that individual has the power to enjoy income of a person abroad as a result of a relevant transfer. Section 727 charges income treated as arising under section 728, where the individual has received a capital sum as a result of the relevant transactions. Section 731 charges a person who made no transfer at all but who receives a benefit out of assets available by reason of one.
The mechanism is worth stating precisely because it is often described loosely. The offshore company is not taxed. Its income is treated as the individual’s income and charged on the individual, in the tax year it arises to the person abroad, whether or not a penny is distributed. There is no de minimis threshold, no requirement that the individual controls the entity, and no requirement that any tax was in fact saved anywhere.
The width comes from two definitions that sit early in the Chapter. A relevant transaction includes not only the transfer itself but any associated operation, and an associated operation may be effected years later by someone else entirely. Section 725 offers a reduction where a controlled foreign company charge has already bitten on the same profits, which tells you how routinely the two regimes overlap in practice.
Fisher, and the gap Parliament closed
For a long time HMRC argued that where a company made a transfer, the shareholders who procured it could be treated as quasi-transferors. That argument was tested to destruction in Fisher v HMRC [2023] UKSC 44. A UK company had moved its telebetting business to Gibraltar, and HMRC assessed the family shareholders on the Gibraltar company’s income. The Supreme Court held that the transferor is the person who made the transfer, and that a shareholder does not become a transferor by owning shares in the company that did. The family members’ appeals were allowed.
Parliament responded within months. Section 22 of the Finance (No. 2) Act 2024 inserted sections 720A and 727A, with effect for income arising to persons abroad on and after 6 April 2024. The new sections extend the section 720 and section 727 charges to a relevant transfer carried out by a closely-held company in which an individual has a qualifying interest. A qualifying interest exists where the individual, or a nominee, is a participator in that company or in the first company of a chain of closely-held companies leading to it.
Two conditions then apply, and the way they are drafted is the point. The individual is treated as involved in the company unless the individual satisfies an officer of Revenue and Customs that neither the individual nor the relevant participator had any direct or indirect involvement in the decision making of the company. The avoidance condition is met where the relevant participator did not object to the transfer and it is reasonable to conclude that the participator was aware, or ought reasonably to have been aware, of the transfer and that one of its direct or indirect consequences is the avoidance of a liability to taxation. Silence at a shareholders’ meeting is enough. Arrangements designed to engineer non-involvement are disregarded.
The exemption that closed on 6 April 2025
The Finance Act 2013 had introduced section 742A, a genuine transactions exemption operating retrospectively from 2012-13. It applied where the relevant transactions were genuine in all the circumstances and where imposing the charge would have restricted a European Union treaty freedom. For a British resident holding a real operating company in a member state, that was often the cleanest available answer, because it engaged the freedom of establishment directly rather than requiring an argument about motive.
Section 742A was omitted for 2025-26 and subsequent tax years by Schedule 12 to the Finance Act 2025. HMRC’s own account of the change, in the International Manual, is that following the United Kingdom’s withdrawal from the European Union the exemption was no longer required. Nothing was enacted in its place.
The consequence is narrow and specific. A European structure whose defence rested on the treaty freedoms no longer has a statutory route to that defence for income arising from 6 April 2025. It has to be argued instead through the motive test, which is a different exercise on different evidence, and which was drafted long before the structure existed.
What section 737 now requires
Section 737 applies where all the relevant transactions are post-4 December 2005 transactions, which covers most structures in current use. It exempts the individual who satisfies HMRC of one of two conditions.
Condition A is that it would not be reasonable to draw the conclusion, from all the circumstances of the case, that the purpose of avoiding liability to taxation was the purpose, or one of the purposes, for which the relevant transactions or any of them were effected. Condition B is that all the relevant transactions were genuine commercial transactions and that it would not be reasonable to conclude that any one or more of them was more than incidentally designed for the purpose of avoiding liability to taxation.
Read the qualifiers. Condition A fails if avoidance was one of several purposes, not merely the main one, and it fails if that purpose attaches to any one of the relevant transactions rather than to the structure as a whole. Condition B requires every relevant transaction to be genuine commercial, which again reaches associated operations carried out long after the original transfer. The definition of taxation in section 737 refers to revenue for whose collection and management the Commissioners are responsible, so an intention to reduce a foreign tax is outside the test. That is a real distinction and it is frequently the strongest point available.
Where a legitimate European structure gets caught
The pattern we see most often is a founder who is not thinking about the code at all. A Dutch or Irish holding company is formed for reasons that would survive any commercial scrutiny, typically a European counterparty, a licensing requirement, or a co-investor who will not fund through a UK entity. Profits accumulate at the holding level because there is no reason to distribute them. The founder is UK resident throughout. On the face of the statute the retained profits are the founder’s income each year.
The second pattern arrives with the individual rather than with the assets. A structure is established by a parent or a business partner who is not UK resident, and a family member later moves to the United Kingdom. That person made no transfer, so sections 720 and 727 are irrelevant, and section 731 is not. Any benefit received out of the assets is in charge, and the benefit does not have to look like income.
The third pattern is the one the 2024 amendments were written for. A transfer is made by a company rather than by an individual, on advice, with the shareholders informed and content. Before 6 April 2024 Fisher answered that. From that date the shareholders must show non-involvement in the decision making to the satisfaction of an officer, which is a burden most participators in a family company cannot discharge.
The evidence is contemporaneous or it does not exist
Everything in section 737 turns on purpose at the time, and the burden lies on the individual. That makes the defence an archival question rather than an advocacy question. What has to be produced is the board record, the instructions given to advisers, the commercial correspondence and the internal analysis as they stood when the structure was formed.
Two practical points follow. The first is that a formation file containing a memorandum comparing effective rates is not fatal, but it converts condition A into an argument the taxpayer is unlikely to win and pushes the whole defence onto condition B. The second is that the file has to outlive the adviser who created it. Structures reviewed under enquiry are routinely ten or fifteen years old, and the partner who took the instructions has retired.
In one mandate we were asked to review a European holding company formed eight years before the founder became UK resident. The commercial rationale was genuine and easy to evidence. What was missing was any record of who decided what, because every resolution had been signed in circulation and no minute recorded a discussion. The structure was defensible in substance and thin on proof, which under a code that puts the burden on the individual is the same as being wrong.
Building the file before the structure
The correct sequence is to treat the transfer of assets abroad code as a design constraint rather than as a compliance question at the end of the year. Where a UK resident individual will hold or benefit from a European entity, the questions to answer at formation are which section could apply, which condition of section 737 the file is being built to satisfy, and what document will carry that evidence in fifteen years.
The repeal of section 742A has made this less optional. Until 5 April 2025 a genuine European structure had a defence that did not depend on reconstructing intentions. From 6 April 2025 it depends on nothing else. A structure that has real substance in the Netherlands or in Ireland and no contemporaneous record of why it was created is now materially more exposed than it was two tax years ago, without anything about the structure itself having changed.