IFM41010 - Remittance basis and FIG regime: overview
FA22/SCH2/PARA46
Finance Act 2022 introduced a regime for companies that meet certain conditions (IFM40200+) and decide to become qualifying asset holding companies (QAHCs).
The regime provides a 'look through' treatment and allows certain amounts paid by a QAHC to be treated as non-UK source if the recipient:
- is a qualifying remittance basis user, or
- has made a valid claim to relief under the foreign income and gains (FIG) regime.
The general rule is that any distributions from a UK company to a UK resident individual are subject to UK income tax irrespective of the location of assets or activities that gave rise to the income or capital profits being distributed. If a UK company has only foreign assets or investments, any distributions made by the UK company will be UK source due to the company being resident in the UK. Looking through the QAHC and treating certain amounts as non-UK source therefore reflects the underlying mix of UK and overseas income and gains of the QAHC.
Qualifying remittance basis user
The remittance basis applied prior to 6 April 2025 and has now been replaced by the FIG regime.
If an individual was a qualifying remittance basis user then FA22/SCH2/PARA46 has the effect of looking through a QAHC to the underlying investments and treating amounts distributed by the QAHC as foreign source, where they would be foreign source but for the use of a QAHC. This means that distributions from the QAHC that relate to the QAHC’s underlying foreign assets is taxed on the remittance basis if a claim to the remittance basis has been made for that tax year.
FIG regime
If an individual has made a valid claim to relief under the FIG regime then the remittance basis treatment is broadly replicated albeit the relevant legislation now sits predominantly in the FIG regime rules rather than the QAHC rules.
ITTOIA05/S845H and FA22/SCH2/PARA46 have the effect of looking through a QAHC to the underlying investments and treating income distributed by the QAHC as “qualifying foreign income” where it would be foreign source but for the use of a QAHC. This means the individual can make a foreign income claim for the amount under ITTOIA05/S845A.
TCGA92/SCHD1/PARA6 and FA22/SCH2/PARA46 have the effect of looking through a QAHC to the underlying investments and treating a gain distributed by the QAHC as a “qualifying foreign gain” where it would be foreign source but for the use of a QAHC. This means the individual can make a foreign gain claim for the amount under TCGA92/SCHD1/PARA1.
Investment management service
This modified, 'look through' treatment only applies to investment managers who are taxable on the remittance basis, or have made a valid claim under the FIG regime, and provide investment management services in connection with investment arrangements involving the QAHC.
The disguised investment management fees (DIMF) (IFM36000) or carried interest provisions (IFM37000) may apply to income or gains arising to an individual who performs investment management services. Care should therefore be taken to understand whether these provisions apply so that the correct amount of tax is paid.