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HMRC internal manual

Residence, Domicile and Remittance Basis Manual

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Remittance Basis: Identifying Remittances: Conditions A and B: Loans in existence before 12 March 2008 - grandfathering no longer applicable

Refer to RDRM33180 for details and examples of the transitional provision that may apply to loans and mortgages taken out prior to 12 March 2008.

Interest paid using relevant foreign income will lose the relief granted by the transitional provisions if:

  • any term upon which the loan was made is varied or waived
  • the debt ceases to be secured on the interest
  • the property is used as security for other loans
  • the property ceases to be owned by the individual

Any payment of interest out of relevant foreign income made thereafter will be treated as a remittance to the UK.

Example 1

Judith is a UK resident, non-domiciled remittance basis user who has an offshore mortgage from an overseas lender that was in place before 12 March 2008 on which she pays interest out of her relevant foreign income.

Under the terms of her loan agreement interest on the loan is at a fixed rate for two years at the end of which Judith will automatically transfer to the lenders standard variable rate for the remaining ten year period of the loan agreement.

The ending of the fixed-rate period and the automatic transfer to the variable rate is not regarded as amending or otherwise varying the loan facility, so the ‘grandfathering’ provision at FA08/para 90 applies to the loan.

Example 2

Jane is a remittance basis user who has an offshore mortgage on her UK residential property from an overseas lender that was in place before 12 March 2008. She pays the interest on this loan using her relevant foreign income from her Jersey bank account.

Under the terms of her loan agreement the loan is a two-year fixed interest loan. In May 2009, at the end of the two year period, Jane agrees a new loan with the same bank, for a further period of two years. The new loan has the same terms as her previous loan agreement.

This is a new loan that is not covered by the grandfathering provisions at FA08/para 90. The new loan is a ‘relevant debt’; any payments of interest (or capital) that are made from the Jersey account are a taxable remittance.