Beta This part of GOV.UK is being rebuilt – find out what this means

HMRC internal manual

Residence, Domicile and Remittance Basis Manual

From
HM Revenue & Customs
Updated
, see all updates

Remittance basis: identifying remittances: conditions A and B: condition B - remittances derived from income or gain

Derived remittances - property, service or consideration for a service

The second part of Condition B (see also RDRM33140 and RDRM33160) applies when foreign income and gains of a relevant person are identified as having been used so that property is used by or a service, or consideration for a service is provided in the UK (directly or indirectly) to or for the benefit of a relevant person (see RDRM33030 for definition of ‘relevant person’) (ITA07/s809L(3)(b)).

The money or other property, or the consideration for the service may be derived from the foreign income or gains either in whole or in part. The derivation may be reasonably obvious and direct (refer to examples 1, 2 and 3) or less obviously so (refer to example 4).

The taxable amount is the amount of foreign income and gains from which the property, service or consideration derives, and not the value of the property either at the time of purchase or upon remittance.

NOTE 1: under the terms of the legislation that applies from 6 April 2008, property etc. does not have to be sold in the UK before there is a taxable remittance (refer to RDRM31250 Changes to old regime - cash only).

NOTE 2: with effect from 6 April 2012 new legislation has been introduced that allows for property to be brought to the UK to be sold. A taxable remittance is not made if the proceeds of the sale are removed from the UK within certain time limits - see RDRM34240.

In cases where the property derives from the income or chargeable gains, the property must be that of a relevant person. Similarly, where the consideration for the service derives from the income or chargeable gains, that consideration must be given by a relevant person (ITA07/s809L(3)(b)(ii)). Refer to examples 5 and 6.

See RDRM33160 for information about taxable remittances when the individual’s foreign income or gains are used outside the UK, whether directly or indirectly, in respect of a relevant debt (ITA07/s809L(3)(c) and (d)).

Note: The examples below are designed simply to illustrate the basic principles. The examples refer to ‘remittances’ of identifiable forms of income but in practice you may also have to consider the mixed fund rules in order to identify what has been remitted - refer to RDRM35000.

Also the examples, and these Chapters use the phrase remittance of ‘foreign chargeable gains’, or refer to such gains being ‘remitted’. This phrase is used throughout as convenient shorthand. Foreign chargeable gains will usually be part of the proceeds from the sale of an asset, which will likely be a mixed fund. You will need to refer to this Chapter together with RDRM35000.

Example 1

Ali, a remittance basis user, purchases some sculptures in Sweden in 2012-13 using relevant foreign earnings, and gives them to his wife as an anniversary gift. She keeps them at her mother’s home in Stockholm. Two years later, in 2015-16 Ali’s wife decides to bring these sculptures to the UK to display in her UK garden.

The sculptures are regarded as derived from Ali’s foreign income. Ali has made a taxable remittance in 2015-16, being the original amount of foreign income used to purchase the sculptures. The property (the sculptures) is the property of a relevant person (Ali’s wife).

Also refer to the later example under Condition B - relevant debt RDRM33160 

Example 2

In tax year 2010-11 Marcus, a remittance basis user, purchases a high-range laptop while on a trip to Japan. He negotiates a total purchase cost of £6,500. Marcus uses £3,000 of his foreign income and £2,000 of his foreign chargeable gains from the previous tax year, and pays the remainder using his UK employment income. Marcus then brings the laptop into the UK.

The laptop is regarded as partly derived from his foreign income and gains. Marcus has a taxable remittance of £5,000, in 2010-11 that being the original amount of foreign income (£3,000) and foreign chargeable gains (£2,000) used to purchase the laptop. The property (the laptop) is the property of a relevant person (Marcus).

Example 3

Francine, a remittance basis user, has extension work done on her house in Brighton by Paulo (refer to the earlier example). Paulo is a specialist contractor from Spain, who creates a Spanish-style courtyard. This is a service provided in the UK.

Francine has several French government bonds, which she purchased entirely from her relevant foreign income, and a German government bond which she acquired using her foreign chargeable gains.

Francine agrees with Paulo to settle the invoice by giving him three of the French bonds and her German bond, and these are duly sent to Paulo at his French home in May 2010. The bonds used to pay the consideration for the service are ‘derived from’ Francine’s foreign income and gains so Francine has made a taxable remittance in 2010-11. The consideration is consideration given by a relevant person (Francine).

Also refer to the later example under RDRM35020 Conditions A and B - remittances of foreign income or chargeable gains.

Example 4

Johanna is a remittance basis user. Her 15 year old son Joshua has guitar lessons with a master guitarist, Kurt, every week (refer to the earlier example).

Johanna has a time share apartment in Morocco which she pays for from her relevant foreign earnings each year which allows her to use the apartment for four weeks every year. In tax year 2013-14 Johanna agrees with Kurt that rather than pay him in cash for the guitar lessons he may use the apartment for two weeks in June 2013.

A service has been provided in the UK (the guitar lessons) for the benefit of a relevant person (Joshua) and the consideration for the service (the use of the Moroccan apartment) derives indirectly from Johanna’s foreign income (the relevant foreign earnings she uses to pay for the timeshare). The consideration is consideration given by a relevant person (Johanna).

Also refer to the later example under RDRM35030 Conditions A and B - remittances derived from foreign income or gains

Example 5

Caroline is a remittance basis user. In August 2013 she realises some foreign assets and so makes some foreign chargeable gains. She uses all the proceeds (and so uses all these gains) to purchase a motorcycle in Paris which she gives to her husband Joel. It is registered in his name. Joel keeps the bike at his French apartment. A few years’ later Caroline and Joel divorce, and Joel moves from their home in Liverpool to Manchester.

In September 2017 Joel and Caroline’s 16 year old son, Joseph wants to learn how to ride a motorcycle, so Joel imports his bike from Paris to his Manchester home for Joseph to use.

Here, property has been provided in the UK (the motorcycle) for the use of a relevant person (Joseph) and the property derives directly from Caroline’s foreign chargeable gains. However the motorcycle is the property of Joel, who is not a relevant person, so there is no taxable remittance for Caroline.

Note: Joel and Caroline were married and so Joel was a relevant person in August 2013 when Caroline gave him the motorcycle; he could not therefore have been a gift recipient (refer to Condition C - Gift recipients cannot be relevant persons) RDRM33240. By 2017 they have divorced so Joel is not a relevant person when he brings in the motorcycle for Joseph to use.

Example 6

In 2011, while visiting New York, Ros, a UK resident remittance basis user, purchases several art prints by H Marecus, an international artist. Ros uses her relevant foreign income to make the purchase. She gives them to her daughter Rachael, who is at that time living and studying in the US, as a 16th birthday present in February 2011. Rachael returns to the UK in May 2011, but leaves the prints at her uncle’s New York apartment.

In June 2016 Rachael’s 3 year old daughter Abigail decides to start singing lessons in Newcastle. The singing teacher’s mother is a collector of Marecus prints, so the teacher agrees with Rachael to accept one of the prints in exchange for the lessons. Rachael arranges for her uncle to send the print from New York directly to the singing teacher’s mother in California.

A service has been provided in the UK (the singing lessons) for the benefit of a relevant person (Abigail) and the consideration for the service (the Marecus print) derives from Ros’s foreign income (the relevant foreign income Ros uses to pay for the print). However the consideration is given by Rachael, who is not a relevant person and so Ros has not made a taxable remittance of her relevant foreign income.

Note: Rachael was 16 years old and so is a relevant person in February 2011 when her mother gave her the prints (also refer to Condition C - Gift recipients cannot be relevant persons) RDRM33240. Rachael is 21 years old and so is not a relevant person in June 2016 when she gives the prints in consideration for a service.