In Raj Sehgal and Sanjeev Mehan v HMRC [2022] TC 8581, the First Tier Tribunal (FTT) found that arrangements which resulted in a non-UK entity settling a UK-based indemnity did not represent a taxable remittance for the taxpayers.

  • The taxpayers were UK Resident Non-Domiciled individuals claiming the remittance basis of taxation.
  • In February 2010, the taxpayers' Jersey company sold shares in Visage Group Limited (Visage), a UK company for cash and loan notes to a third party.
  • The taxpayers indirectly owned IR, a company which owed Visage some £6m, this amount was to be indemnified by the taxpayers.
  • After the purchase, it became clear that IR could not pay the £6m to Visage and the taxpayers' indemnity was called upon.
  • The purchaser was concerned about reporting the indemnity, so requested, via a side letter, that the amount was repaid by way of a non-arms length trading purchase by a Jersey Company, the parent of IR, whereby €200k of clothes was purchased for €6.8m. The funds for this transaction came from the proceeds of redeemed loan notes from the initial transaction.
  • Following the transaction, IR was issued with a credit note in respect of the debt.
  • HMRC opened an enquiry contending that the side letter and credit note amounted to a Remittance by the taxpayers of part of the gain from the sale of Visage shares as:
    • The arrangements represented a non-UK entity settling a UK-based debt.
    • The funds used to settle that debt derived from the chargeable gain arising in IR.
  • The taxpayers appealed.

The FTT found that there was no chargeable remittance as:

  • The side letter did not represent property used in the UK by a relevant person (either IR or the taxpayers).
  • A service in the UK had been provided under the side letter.
  • However, neither the property nor the service derived from the chargeable gain arising on the underlying share sale.

The appeal was allowed.

UPDATE: This case has been appealed to the Upper Tribunal.

Useful guides on this topic

SRT: Statutory Residence Test
What is the statutory residency test? Why is it important and how does it work?

SDT: Statutory Residence Test Toolkit
This is a freeview interactive tool to determine 'At a glance' whether you are UK resident or not in any tax year.

Domicile and the remittance basis: At a glance
What is domicile? What is the remittance basis and when does it apply?

Non-domicile status, deemed domicile & tax
Who is non-UK domiciled? What does this mean for UK Income Tax, Capital Gains Tax and Inheritance Tax? What reliefs are available to non-doms?

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?

External links

Raj Sehgal and Sanjeev Mehan v HMRC [2022] TC 8581


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