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HMRC internal manual

Residence, Domicile and Remittance Basis Manual

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Remittance Basis: Introduction to the Remittance Basis: Transitional Provisions: Relevant foreign income and offshore loans - Example 6

Emilie is a UK resident non-domiciled remittance basis user who has agreed with her bank in France that she will borrow £5,000,000.

Before 12 March 2008, £4.5 million of the facility is initially drawn down and the money is used by Emilie to purchase a residential property in the UK.

Subsequently (and before 12 March 2008) a second tranche of £500,000 was drawn down under the same loan facility, also outside the UK. The money from the second draw down was used to refurbish the residential property purchased by the first draw down.

The effect of FA2008/para 90(1) is to provide transitional provisions for loans made for the purpose of acquiring an interest in residential property in the UK. In this scenario, there are effectively two separate loans, even though they were made under a single facility letter. It is the drawdown of the money rather than the facility letter which constitutes the lending of the money. Therefore the first £4.5m drawn-down was money lent to the individual before 12 March and used to purchase a UK residential property and for no other purpose and was secured on that interest. That being the case, the transitional conditions will apply if, and to the extent that, relevant foreign income is used to pay interest on the debt.

However, because the second £0.5m tranche of money was used to refurbish the property rather than to acquire an interest in it, it is does not meet the conditions set out para 90(1)(b). Any relevant foreign income which is used to pay interest on this part of the debt will be treated as a taxable remittance in the UK.