IFM41030 - Remittance basis and FIG regime: calculating the foreign proportion of income and gains
Where a QAHC invests in both UK and overseas assets, the proportion of any income or gains that is treated as foreign income or gains is equal to the proportion of the QAHC’s profits over the relevant period that derive from foreign sources.
For QAHCs that have been in the QAHC regime for three full accounting periods, or more, the relevant period for apportionment is the three most recent accounting periods for the QAHC.
If the company has not been a QAHC for three full accounting periods, the relevant period is the period:
- beginning with the beginning of the day the company became a QAHC, and
- ending with the end of the day before the income or gains arose to the individual.
- If the income or gains arose to the individual on the day the QAHC became a QAHC, the period will end at the end of that day.
In looking at the profits for an accounting period, include any profits that would have arisen had the QAHC disposed of all of its assets for consideration equal to the market value of the assets immediately before the end of the accounting period.
Example 1
A QAHC pays a dividend to the investment manager and additionally the investment manager makes a gain on the disposal of their shares in the QAHC.
Dividend paid by QAHC to investment manager = £5,000
Gain on the investment manager’s disposal of QAHC shares = £10,000
| Accounting period | QAHC profit derived from UK assets | QAHC profit derived from foreign assets | Total |
| Accounting period 1 | £100,000 | £150,000 | £250,000 |
| Accounting period 2 | £110,000 | £140,000 | £250,000 |
| Accounting period 3 | £90,000 | £160,000 | £250,000 |
| Total | £300,000 | £450,000 | £750,000 |
Total of the QAHC profits for the three preceding accounting periods = £750,000
Total profits for the periods that derive from foreign assets = £450,000
Proportion of the profits that relate to foreign assets = £450,000/£750,000 x 100 = 60 percent
Foreign proportion of the dividend income is £5,000 x 60 percent = £3,000
Foreign proportion of the gain is £10,000 x 60 percent = £6, 000
Example 2
Company 1 (a QAHC) pays a £10,000 dividend to the investment manager.
Of that amount, £9,000 derives from investments made by Company 1 and £1,000 derives from an underlying investment that was made by Company 2 (a company in which Company 1 holds an interest.)
The foreign proportion of the dividend income is determined as follows.
Company 1 (the QAHC)
| Accounting period | QAHC profit derived from UK assets | QAHC profit derived from foreign assets | Total |
| Accounting period 1 | £100,000 | £150,000 | £250,000 |
| Accounting period 2 | £110,000 | £140,000 | £250,000 |
| Accounting period 3 | £90,000 | £160,000 | £250,000 |
Total | £300,000 | £450,000 | £750,000 |
Total of Company 1 profits for the three preceding accounting periods = £750,000
Total profits for the periods that derive from foreign assets = £450,000
Proportion of the profits that relate to foreign assets = £450,000/£750,000 x 100 = 60 percent
Amount of the dividend income that derives from investments made by Company 1 = £9,000
Foreign proportion of the dividend income is £9,000 x 60 percent = £5,400
Company 2 (the company in which the QAHC holds an interest)
| Accounting period | Company profit derived from UK assets | Company profit derived from foreign assets | Total |
| Accounting period 1 | £20,000 | £20,000 | £40,000 |
| Accounting period 2 | £20,000 | £30,000 | £50,000 |
| Accounting period 3 | £35,000 | £25,000 | £60,000 |
Total | £75,000 | £75,000 | £150,000 |
otal of Company 2 profits for the three preceding accounting periods = £150,000
Total profits for the periods that derive from foreign assets = £75,000.
Proportion of the profits that relate to foreign assets = £75,000/£150,000 x100 = 50 percent
Amount of dividend income that derives from investments made by Company 2 = £1,000
Foreign proportion of dividend income is £1,000 x 50 percent = £500
The total foreign proportion of the £10,000 dividend income is £5,900 (£5,400 + £500)