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HMRC internal manual

Capital Gains Manual

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Remittance basis: meaning of remitted to the United Kingdom: other reciprocal arrangements: ITA07/S809L(5)

There is another situation in which there will be a remittance of a foreign chargeable gain to the United Kingdom. This is broadly where neither of the other two cases apply (ie the basic remittances situation described in CG25341 and the gifted property situation described in CG25342) but an individual to whom a foreign chargeable gain accrues or some other relevant person enjoys a benefit of some description in the UK which is linked to that gain through what might be called a reciprocal arrangement with another person.

The general rule is that property belonging to someone other than a relevant person or a gift recipient is

  • brought to, or received or used in the United Kingdom and is enjoyed by a relevant person, or
  • used as consideration for a service that is enjoyed in the United Kingdom by a relevant person, or
  • used outside the United Kingdom in respect of a relevant debt

and there is what the statute refers to as a “connected operation”.

For a full account of what constitutes a connected operation, see the Residence, Domicile & Remittances Manual. In general terms, if a relevant person transfers money or other property which is or derives from an individual’s chargeable gain to or for the benefit of the person whose property is applied as described in the bullet points above then that is termed a qualifying disposition. A connected operation is then something which is done in relation to the property applied as described in the bullet points and is furthermore done with reference to a qualifying disposition or with a view to enabling of facilitating a qualifying disposition.

Note that the connected operation which creates the advantage in the UK for a relevant person can precede the “favour” done to the person whose property gives rise to that advantage.

Example

Antonella has claimed remittance basis in 2009-10. She realises a foreign chargeable gain of £5 million in that year and uses it to buy shares in a company listed on the Zurich stock exchange. She enters into an agreement with her bank in Naples that an Italian subsidiary of the bank will acquire a house in London and allow Antonella and her family to live in it rent-free: as consideration for this she agrees to transfer her Swiss shares to the bank. The family moves into the house on 3 April 2010 and Antonella transfers the shares on 7 April.

Antonella is a relevant person, and she makes a disposition of property which derives from her own chargeable gains. The disposition is made to (if it is made directly to the bank’s subsidiary) or for the benefit of (if it is made to another company in the bank’s group) the person whose property is used to provide the advantage in the UK. There is therefore a qualifying disposition.

Property belonging to the bank subsidiary is used in the United Kingdom and is enjoyed by a relevant person (eg Antonella or her family). Furthermore, the process by which the London House is made available is closely linked to the qualifying disposition ie the transfer of the shares to the bank, so it is a connected operation.

So a chargeable gain of £5m is treated as accruing to Antonella in 2009-10.

Note that the conditions for a basic remittance are not met because the London property is not, and is arguably not derived from, the chargeable gain, and does not belong to a relevant person. The conditions for a remittance after a gift are not met because the gain or property derived from the gain is not gifted to the bank subsidiary but transferred for what we assume is full value.