Introduction: Why the Transfer of Assets Abroad Code Catches Americans
The transfer of assets abroad rules let HMRC tax a UK-resident individual on income that legally belongs to a foreign company, even where not a penny has been paid out. For an American who moves to London still owning a US or offshore company, that is a shock. Your corporation keeps its profits, files its own return, and HMRC still sends you a bill at up to 45%.
Furthermore, the code reaches back in time. You did not need to be UK resident when you set the structure up. Consequently, an LLC formed in Delaware a decade before you ever considered Britain can produce a UK charge in your first year here. At TaxYork, this is one of the most expensive issues we unpick for new arrivals, and almost no American arrives knowing it exists.
What the Transfer of Assets Abroad Rules Actually Do
The transfer of assets abroad code sits in Part 13, Chapter 2 of the Income Tax Act 2007, at sections 714 to 751. Broadly, it prevents UK residents from moving income-producing assets offshore and escaping income tax. Notably, it has existed in some form since 1936, and it is drafted extremely widely.
Three separate charges live inside the transfer of assets abroad legislation. Additionally, each has its own conditions, its own timing and its own defences. This guide covers companies rather than trusts, because that is where American founders, investors and executives are usually caught.
Who Is Most at Risk
The transfer of assets abroad rules bite hardest on Americans with a closely held US corporation or LLC, particularly where the entity holds intellectual property, royalties or an investment portfolio. Similarly, founders who contributed assets to an offshore holding company face the same analysis. Moreover, family members who merely receive money from such a structure can be taxed under a separate charge without ever having transferred anything.
The Three Charges Inside the Transfer of Assets Abroad Code
Understanding which of the transfer of assets abroad charges applies matters, because the amount, the timing and the defences all differ. The transfer of assets abroad provisions attack the same problem from three angles.
The Income Charge: Power to Enjoy
The first transfer of assets abroad charge, in section 720, taxes you on the income of a person abroad where a relevant transfer has occurred and you have power to enjoy that income. According to section 720 ITA 2007, the charge exists to prevent the avoiding of income tax by means of relevant transfers. Importantly, HMRC does not need to show the transfer was made to avoid tax; that question belongs to the defences.
A relevant transfer is any transfer of assets where, as a result, income becomes payable to a person abroad. HMRC's guidance on relevant transfers confirms that "transfer" carries its ordinary meaning. Therefore, subscribing for shares, lending money, assigning intellectual property or capitalising a subsidiary can all qualify.
Power to enjoy is equally broad. It covers five statutory conditions, including benefiting from the income, having it applied for your benefit, controlling its application, or increasing the value of assets you hold. In practice, a sole shareholder of a closely held company satisfies it easily.
The Capital Sums Charge
The second transfer of assets abroad charge, in section 727, catches a different pattern. Here, you do not enjoy the income, but you receive or become entitled to a capital sum connected with the relevant transactions. Consequently, a loan back from the structure, or the right to receive one, can put you inside the charge.
The connection test is wide. HMRC treats the capital sum as caught if its payment is "in any way connected" with the relevant transactions. Furthermore, the charge can continue for every later year in which the offshore income arises.
The Benefits Charge on Non-Transferors
The third transfer of assets abroad charge taxes people who transferred nothing at all. If you receive a benefit provided out of assets available because of a relevant transfer, and there is matchable offshore income, you are taxed on the value of that benefit. HMRC's guidance on what counts as a benefit lists cash, use of a house or car, payment of school fees, settlement of a credit card and interest-free loans.
This part of the transfer of assets abroad code matters for American families. For example, a UK-resident adult child who receives support from a parent's offshore company can face a UK charge on income they never saw. Additionally, from 6 April 2025 the benefits charge once more applies only to non-transferors, following the abolition of the remittance basis. Our guide to the end of the remittance basis for US citizens sets out the wider reform.
The Trap for New Arrivals: Transfers Made Before You Moved
This is the point that surprises every American client, and it is the reason the transfer of assets abroad code matters to people who have never done anything aggressive.
Residence in the Year of Charge, Not the Year of Transfer
You fall inside the transfer of assets abroad charge for a tax year if you are UK resident for that year. However, HMRC's manual on the individual's residence position confirms you need not have been resident when the transfer took place. Sections 721(5)(b) and 728(3)(b) put the point beyond argument.
As a result, a structure built entirely under US law, taxed in the US, and created years before you saw a London job offer, still falls to be considered. Your arrival date under the statutory residence test is what switches the analysis on.
Why Your US Company Counts as a "Person Abroad"
Americans often assume the transfer of assets abroad rules target Caribbean structures. They do not. A person abroad simply means a person resident outside the United Kingdom, so a Delaware corporation, a New York LLC or a Cayman fund vehicle all qualify.
Therefore, an entirely domestic American arrangement becomes an offshore structure the moment you land at Heathrow. Meanwhile, your US filings carry on unchanged, which is precisely why the mismatch goes unnoticed until HMRC asks a question. Where the entity is an LLC, our analysis of US LLCs for UK residents explains the parallel hybrid problem.
Fisher, Rialas and the Question of Who Transferred
Case law has limited the transfer of assets abroad charge in one important way. The courts require a link between the individual charged and the transfer itself. In Fisher v HMRC, decided by the Supreme Court in 2023, shareholders were not treated as transferors when their company moved a business to Gibraltar.
Rialas made a similar point about procurement, where a taxpayer lacked control over the seller's decision. Nevertheless, Parliament reversed much of Fisher within months, which brings us to the 2024 legislation.
Closely Held Companies: Sections 720A and 727A
Finance (No.2) Act 2024 inserted sections 720A and 727A into the transfer of assets abroad code. Consequently, a transfer made by a closely held company can now be treated as made by the individuals behind it.
The Qualifying Interest and Involvement Conditions
Under these transfer of assets abroad provisions, an individual has a qualifying interest where they, or their nominee, are a participator in the closely held company, including through a chain of such companies. The rule reaches non-UK companies that would be close companies if they were UK resident. HMRC's policy paper on the amendments explains the intent.
Involvement is presumed. Specifically, an individual with a qualifying interest is treated as involved unless they satisfy HMRC that neither they nor the relevant participator had any direct or indirect involvement in the company's decision making. That is a difficult negative to prove for an owner-manager.
The Avoidance Condition
Fortunately, a second filter keeps genuinely passive shareholders outside the transfer of assets abroad charge. According to HMRC's guidance on the avoidance condition, the charge applies only where the participator did not object to the transfer and knew both that it happened and that it had the consequence of avoiding tax.
Both elements must be present. Therefore, a minority American investor who never saw the board papers should fall outside the deemed transferor rule. In contrast, a founder who signed the reorganisation will not.
What This Means for American Shareholders
The measure applies to income arising to a person abroad from 6 April 2024, whenever the transfer happened, so the transfer of assets abroad analysis now runs through your corporate history as well as your personal one. Accordingly, a 2015 group reorganisation can be tested against a 2026 tax year. For American shareholders in private groups, the practical answer is evidence: board minutes, valuations and contemporaneous advice showing the commercial purpose.
The Defences, and the One That Disappeared in 2025
The code would be unworkable without exemptions. The transfer of assets abroad defences are set out in sections 736 to 742, and you must claim them and satisfy HMRC that they apply.
Condition A: No Tax Avoidance Purpose
The first transfer of assets abroad defence is the purpose test. Under section 737 ITA 2007, Condition A is met where it would not be reasonable to conclude that avoiding a liability to taxation was a purpose of any of the relevant transactions. For a structure built years before any UK connection, this is often the winning argument.
However, the test looks at every relevant transaction, not merely the original transfer. Subsequently, each capital contribution, share issue or refinancing is examined on its own. One aggressive step can contaminate an otherwise clean history.
Condition B: Genuine Commercial Transactions
Condition B applies where all the relevant transactions were genuine commercial transactions and none was more than incidentally designed to avoid tax. A commercial transaction must be effected in the course of a trade or business, on arm's length terms.
Notably, section 738 restricts investment activity. Making and managing investments counts as a business only where the parties are unconnected and dealing at arm's length. Consequently, a personal investment company rarely satisfies Condition B, and must rely on Condition A instead.
The Repeal of Section 742A
Until 2025, a further exemption protected genuine transactions after 5 April 2012, aimed at European Union freedoms. Finance Act 2025 removed it entirely for 2025-26 onwards. As a result, the transfer of assets abroad defences now rest on Conditions A and B alone, and anyone whose file said "we rely on section 742A" needs a new analysis this year.
The US Side: Where the Two Systems Refuse to Meet
UK guides on the transfer of assets abroad rules stop at the HMRC charge. For an American, the harder question is what the IRS does with the same money.
The Foreign Tax Credit Problem
A UK transfer of assets abroad charge taxes you on income that, for US purposes, belongs to a corporation. Under the section 901 credit rules, credit generally follows the person legally liable for the foreign tax. You are that person in Britain, yet you may have no matching US income in the same year.
Consequently, the credit can be real but unusable. You may hold a large UK liability against income the IRS attributes to your company, while Form 1116 offers nothing to set it against. Where the company is a US corporation paying US corporate tax, the position is worse still, because that tax belongs to the company and cannot shelter you in Britain either.
Controlled Foreign Corporations, PFICs and Timing
Where the entity sits outside America, other rules compound the transfer of assets abroad charge. A controlled foreign corporation under section 957 produces current US inclusions for its US shareholders, reported on Form 5471. Those inclusions rarely match the UK measure of income, and the two tax years end on different dates.
A passive vehicle raises the passive foreign investment company rules instead, reported on Form 8621. Britain then taxes the income as it arises while America waits for a distribution or a sale. Therefore, the mismatch is structural, not merely administrative.
The Check-the-Box Fix and Its Price
One practical alignment exists. Electing under the entity classification regulations to treat a foreign eligible entity as disregarded, using Form 8832, makes the same person taxable on the same income in both countries. Accordingly, the UK charge and the US charge finally line up, and the foreign tax credit starts working.
However, the election is not free. Changing classification triggers a deemed liquidation, which can crystallise gain on appreciated assets, and a US corporation cannot elect at all. Therefore, model the exit cost before filing anything.
Planning Around the Charge as a New Arrival
The four-year window after arrival is the most valuable planning period an American will ever have in Britain, and it is the cleanest answer to a transfer of assets abroad exposure.
How Qualifying New Residents Claim Relief
Income treated as arising under the code is qualifying foreign income. HMRC's FIG regime guidance confirms that a qualifying new resident can claim relief on it, provided they have been non-UK resident for the previous ten years. The relief runs for up to four tax years.
Consequently, a properly claimed exemption removes the UK charge entirely while you restructure. Meanwhile, the claim costs you the personal allowance and the capital gains annual exempt amount, and the income must still be reported.
Why the Claim Can Backfire for Americans
Exempt UK income pays no UK tax, so it generates no foreign tax credit. As a result, your US liability on the same income stands alone and unsheltered. Our analysis of the FIG regime trap for US citizens works through the arithmetic in detail.
Ultimately, the right answer depends on the rate differential. Where the US rate is lower than 45%, the claim usually wins. Above all, the decision should be modelled, not assumed, and it must be revisited before year five.
Case Study: An American Founder With a Delaware Structure
The following illustrative example uses realistic figures and a fixed rate of $1.30 to the pound.
The Facts
Michael is a US citizen who moved to London on 1 May 2025 to run the European arm of his software business. He owns 100% of a Delaware LLC that elected corporate treatment in 2016, into which he assigned his licensing rights. The company holds $12m of assets and earns $900,000 a year of royalties and interest. It distributes nothing, and Michael had never been UK resident before.
The UK Analysis
Michael made a relevant transfer for transfer of assets abroad purposes when he assigned the rights, and he plainly has power to enjoy the income. His pre-UK history helps, because Condition A asks whether avoiding a liability to taxation was a purpose of the transactions. Nevertheless, the burden is his, and the capital contribution he made in 2024 while negotiating the London move is the transaction HMRC will test.
Assume the defence fails. The company's $900,000 becomes £692,308 of income treated as arising to him. With his personal allowance withdrawn, the UK bill is roughly £297,700, or about $387,000.
The US Analysis and the Combined Cost
Meanwhile, the LLC pays US corporate tax of 21%, which is $189,000. That tax belongs to the company, so Michael cannot credit it in Britain. Equally, his UK tax relates to income the IRS attributes to the company, so it does not reduce his own US bill.
The combined cost is about $576,000 on $900,000 of profit, an effective rate near 64%. Furthermore, no money has left the company. By claiming FIG relief for his first four years instead, Michael removes the UK charge, pays only the US corporate tax, and buys four years to restructure before the cliff edge in 2029-30.
How TaxYork Can Help
TaxYork prepares US and UK tax returns for founders, investors and executives with cross-border structures. We test each entity against the transfer of assets abroad conditions, document the Condition A and Condition B position while the evidence still exists, and model the FIG claim against your US result.
Additionally, we handle the reporting on both sides, including US tax returns for expats, Forms 5471, 8621 and 8832, and the FBAR and FATCA disclosures that offshore structures trigger. Where the treaty can help, our tax treaty optimisation service coordinates the credit position. Guidance from the Chartered Institute of Taxation and the ICAEW tax faculty supports the technical analysis, and the IRS treaty pages confirm the American position.
Conclusion
The transfer of assets abroad code can tax an American in Britain on profits that stay inside a foreign company, at rates up to 45%, with no credit for the corporate tax that company already paid. Moreover, the 2024 closely held company rules widened it, and the 2025 repeal of section 742A narrowed the escape routes.
Fortunately, the defences remain, and new arrivals have a four-year relief window. Ultimately, the structures that cause damage are the ordinary ones nobody reviewed before the move, so review yours early.
Contact Us
If you own a company outside the United Kingdom and live here, or plan to, book a consultation with our US-UK team. You can also email hello@taxyork.com or call 020 3488 8606 to discuss your structure, your defences and your filings in both countries.
Disclaimer
This article is provided for general information only and does not constitute tax, legal or financial advice. Tax rules in the United States and the United Kingdom change frequently, and their application depends on your individual circumstances. The figures in the case study are illustrative and use simplified assumptions, including a fixed exchange rate. You should obtain professional advice tailored to your situation before acting on any information in this article. TaxYork accepts no liability for any loss arising from reliance on this content.