HMRC have made an unpublicised change to their guidance on how much of a non-domiciled person's foreign income or gains should be treated as remitted if it used as collateral for loans with a UK purpose. 

Part 14 Income Tax Act 2007 sets out the rules regarding when Foreign Income and Gains (FIG) will be treated as remitted to the UK and taxed accordingly. As part of these rules, where a Non-domiciled individual takes out a loan which is then used for UK purposes. Any FIG being used as collateral will be treated as remitted.

HMRC's guidance had, until May 2021, set out the following:

  • FIG will be treated as remitted if used in respect of a relevant debt.
    • This includes being used to agree on the terms of the loan e.g. as collateral.
    • Relevant debt is any debt that relates, directly or indirectly, to money, property or services brought into the UK either for the benefit or the enjoyment of the individual (or certain connected persons).
  • The amount to be remitted is to be capped at the amount of the relevant debt, being the capital loaned and the accrued interest (HMRC Manual RDRM35050). RDRM35050 still states this.

It would seem that HMRC no longer consider the remittance capped at the level of the loan.

The issue has been noted (by law firm Burges Salmon and professional bodies) that Appendix 5 of the Manual (RDRM37050), which has Remittance basis claims regarding collateral, now states that there is no cap. This means:

  • That where an asset is used as collateral and it has a higher value than the debt, the whole of the asset will be treated as remitted.
  • For example, a £500,000 loan secured against a FIG asset worth £1 million, would see the whole £1 million remitted to the UK.

This new guidance only applies where the whole of the amount of the loan is brought to the UK. Where only part of the loan is brought to the UK, the remitted FIG will be capped at the level of the UK part of the loan.

HMRC manuals at RDRM35050 give the following example:

Freda, a remittance basis user takes out an interest-free loan for £100,000; with allegedly no requirement for repayment until an indeterminate future date. She uses the loan to purchase a plot of land in the UK, so the loan is a relevant debt.

Freda offers as collateral for the loan a French painting, currently in her Parisian apartment. She purchased this painting in an earlier tax year in which she was also a UK resident remittance basis user, using £160,000 of her untaxed relevant foreign income from that year. The painting is still worth £160,000.

Freda has used her foreign income as collateral, in respect of a relevant debt. The amount so used is the untaxed relevant foreign income that was used to acquire the painting - £160,000 in this case.

It is understood that the relevant professional bodies are currently requesting further clarification from HMRC. In the meantime, unless the uncertainty is resolved, non-domiciled individuals:

  • Who have such loan collateral, should await an HMRC update.
  • Considering entering into such an arrangement would be wise to bear in mind a potential change of policy.

Useful guides on this topic

Remittance basis (overseas income)
What is the remittance basis? Who can claim it and when? What are the advantages of claiming the remittance basis and how much is the remittance basis charge?

Remittances: examples of remittances
This checklist is an edited and expanded version of HMRC's guidance on what a remittance is, with practical examples. 

Changes to Remittance basis concession on overseas loans
On 15 October 2015 HMRC announced a further change of view on the taxation of non-UK domiciled individuals who remit funds to the UK after taking out a loan overseas using unremitted income and gains as collateral.

External links

RDRM37050: Appendix 5


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