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HMRC internal manual

International Exchange of Information Manual

Passive Income

Passive Income

In determining whether or not a NFE is an Active NFE or a Passive NFE [see IEIM404040] it is necessary to consider the nature of the income that the entity receives as it is one of the requirements that less than 50% of the gross income of a NFE can be passive income for the entity to be regarded as an Active NFE.

As the term suggests, passive income is derived from investing in assets rather than from activities carried on in the normal course of a trade or business. Passive income includes the portion of income that consists of:

  1. Dividends and other distributions of income;
  2. Interest;
  3. Income equivalent to interest;
  4. Rents and royalties, other than rents and royalties derived in the active conduct of a trade or business conducted, at least in part, by employees of the NFE;
  5. Annuities;
  6. The excess of gains over losses from the sale or exchange of property that gives rise to passive income described previously;
  7. The excess of gains over losses from transactions (including futures, forwards, options and similar transactions) in any Financial Assets;
  8. The excess of foreign currency gains over foreign currency losses;
  9. Net income from swaps;
  10. Amounts received under Cash Value Insurance Contracts.


The context in which the income described above is received is important. For example, where the NFE is a dealer in financial assets any such income as described above may be income from a trading activity. Where the income described above is received by a NFE and is accounted for, or is taxable as, income from trading activities it should not be included in gross income as passive income.