The transfer of assets abroad code is one of the oldest pieces of anti-avoidance legislation still in daily use in the United Kingdom. HMRC’s history of the legislation records that it began as section 18 and Schedule 2 of the Finance Act 1936, was consolidated into the Income Tax Act 1952, then 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 consolidated four times in ninety years, and its reach was extended again as recently as 2024.
That matters for European structures because the charging provisions do not ask whether the arrangement is artificial. Section 721 says in terms that it does not matter whether avoiding income tax was a purpose for which the transfer was effected. The two main charges ask whether assets were transferred, whether income became payable to a person abroad as a result, and whether a UK resident individual can enjoy that income or has received a capital sum. A founder who puts assets into a Dutch holding company with a resident board and a real balance sheet can answer yes to all three. Whether tax is actually payable then depends on a defence, and since 2024 the code has widened while the defences available to a European structure have narrowed.
What the code charges, and on whom
There are three charges, listed in section 714. 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, associated operations, or both. Section 727 charges income treated as arising under section 728, where the individual has received a capital sum connected with the relevant transactions. Section 731 charges income treated as arising under section 732 to a UK resident individual who receives a benefit out of assets available as a result of the transfer or associated operations and who meets the other conditions of section 732(1), among them that the individual is not liable under section 720 or 727 by reference to that transfer and would not be so liable if the effect of sections 726 and 730 were ignored; the heading of section 732 calls them non-transferors.
The mechanism is worth stating precisely because it is often described loosely. The code does not tax the offshore company. Section 721 treats an amount equal to the income of the person abroad as arising to the individual, who is charged for each tax year in which its conditions are met, whether or not a penny is distributed, because it does not matter whether the income may be enjoyed immediately or only later. The Chapter sets no de minimis threshold. Control is not required either: the ability to control the application of the income is only one of the five enjoyment conditions, and meeting any one of them is enough.
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 under section 719 an associated operation is an operation of any kind effected by any person in relation to any of the assets transferred, any assets directly or indirectly representing them, the income arising from those assets, or any assets directly or indirectly representing accumulations of that income, whether before, after or at the same time as the transfer, so it may be effected years later by someone else entirely. Section 725 reduces the amount charged where a controlled foreign company charge has been charged on profits that form part of the same income, in proportion to the share of those profits apportioned to chargeable companies, which tells you that the two regimes can reach the same profits.
Fisher, and the gap Parliament closed
HMRC long 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, decided under section 739 of the 1988 Act. A UK company had moved its telebetting business to Gibraltar, and HMRC assessed family shareholders on the Gibraltar company’s income. The Supreme Court held that the charge reached only the transferor of the assets, and that the family members, who owned and directed the UK company, were not singly or collectively the transferors of the business it had sold. The family members’ appeals were allowed and HMRC’s appeal was dismissed.
Parliament responded within months. Section 22 of the Finance (No. 2) Act 2024 inserted sections 720A and 727A, with definitions in a new section 719A, in relation to income arising on or after 6 April 2024, and HMRC’s history of the legislation notes that the charges apply regardless of when the closely-held company made the transfer. 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, but only where the individual is involved in the company and the avoidance condition is met. 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, each a participator in the next, that includes the company which made the transfer.
Those two conditions are where the drafting does its work. 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 has 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 therefore satisfies the first limb, because the test is the absence of an objection rather than approval; the second limb turns on what the participator knew or ought reasonably to have known. Arrangements are disregarded where their main purpose, or one of their main purposes, is to secure non-involvement or to prevent the avoidance condition from being met.
The exemption that closed on 6 April 2025
The Finance Act 2013 had introduced section 742A, by paragraph 7 of Schedule 10, a genuine transactions exemption operating retrospectively from 2012-13 under paragraph 9 of that Schedule and confined to relevant transactions effected on or after 6 April 2012. It applied where the individual satisfied an officer that, viewed objectively, the transaction was genuine, and where charging the individual would, in contravention of the relevant provisions of the Treaty on the Functioning of the European Union or the EEA agreement, have been an unjustified and disproportionate restriction on a freedom they protect. The section itself set out in more detail what genuineness required, and the income left out of account was the income attributable to the qualifying transaction. For a British resident holding a real operating company in a member state through transactions made after that date, 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 paragraph 48 of Schedule 12 to the Finance Act 2025, read with paragraph 70(1). 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. The manual goes further in its note on EU law: in HMRC’s view the freedom of establishment stopped applying to movements between the United Kingdom and the member states from 31 January 2020, and the free movement of capital from 31 December 2023. Paragraph 48 simply omits the section, and the lists of exemptions in sections 720, 727 and 731 now end at section 742.
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 2025-26 and later tax years, and on HMRC’s reading the freedoms themselves had stopped applying earlier still. It has to be argued instead through section 737, or through sections 739 and 740 where some or all of the relevant transactions were effected before 5 December 2005, which is a different exercise on different evidence.
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; sections 739 and 740 deal with cases where some or all of them are earlier. It exempts the individual who satisfies an officer of Revenue and Customs that Condition A is met or, where it is not, that Condition B is met.
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 a genuine commercial transaction, which again reaches associated operations carried out long after the original transfer, although where an earlier year was exempt under Condition B, sections 741 and 742 can confine a later charge under section 720 or 727 to the part of the income that appears to an officer of Revenue and Customs to be justly and reasonably attributable to the later operations. Section 738 gives commercial a narrow meaning. The transaction must be effected in the course of a trade or business, or with a view to setting one up, and for its purposes; it must be on terms, and of a kind, that persons not connected with each other dealing at arm’s length would have agreed; and making or managing investments counts as a trade or business only so far as the person doing it and the person for whom it is done are not connected and deal at arm’s length. Section 737 defines taxation as including any revenue for whose collection and management the Commissioners are responsible, and HMRC’s guidance on the meaning of taxation accepts, citing Sassoon, that taxation means UK taxation, so that where the intention is to avoid foreign tax and only foreign tax is avoided the provisions will not apply. 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. Where the founder’s own transfer of assets, or an associated operation, is what put the income there and the conditions of section 721 are met, then on the face of the statute an amount equal to the holding’s retained income is treated as the founder’s income each year unless an exemption applies.
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 not the natural route unless the transfer was made by a closely-held company in which they have a qualifying interest, and section 731 can apply. A benefit received out of the assets can be charged, up to the relevant income available to match it under section 733, and the benefit does not have to look like income. For 2025-26 or a later tax year, if that person is entitled to claim the relief for qualifying new residents under section 845A of the Income Tax (Trading and Other Income) Act 2005 for that tax year, deemed income under section 732, or under section 721 or 728 where those charges apply, that is foreign within sections 735, 726 and 730 respectively may be identified in a foreign income claim made in a return; it is a relief to be claimed, not an automatic exemption, and section 845A points to consequences of making the claim, among them the loss of the annual exempt amount for capital gains tax.
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. For income arising before 6 April 2024, Fisher answered that. For income arising from that date a participator is treated as involved unless they satisfy an officer of their non-involvement in the decision making, which is a burden most participators in a family company cannot discharge, and the charge then turns on the avoidance condition and, beyond it, on the exemptions.
The evidence is contemporaneous or it does not exist
Section 737 turns largely on purpose, judged as at the time each transaction was effected, and the burden lies on the individual, who must satisfy an officer. The section also requires the intentions and purposes of anyone who designs or effects the transactions, or advises on them, to be taken into account. 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 UK and foreign 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 the statute still offered a genuine European structure a defence that did not turn on intentions, although in HMRC’s view the treaty freedoms behind it had stopped applying between the United Kingdom and the member states before then. From 6 April 2025 the defence turns on purpose and, under Condition B, on commercial character as well. 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 while section 742A could be relied on, without anything about the structure itself having changed.
This article is informational and does not constitute tax or legal advice. The treatment of any structure depends on its facts and on the law of each jurisdiction involved. Each engagement is subject to scope and applicable regulation.