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HMRC internal manual

Residence, Domicile and Remittance Basis Manual

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Remittance Basis: Identifying Remittances: Condition C - Gift Recipients: Condition C - relevant debt

A taxable remittance may also occur when the qualifying property of a gift recipient is used outside the UK, whether directly or indirectly, in respect of a relevant debt. (ITA07/s809L(4)(c)).

A relevant debt is any debt that relates, directly or indirectly, to the money, property or service identified by Condition A RDRM33120 or Condition D RDRM33400, or the qualifying property or service identified by Condition C RDRM33200 as brought to, used, received or provided in the UK by or for the benefit of relevant person RDRM33030 (ITA07/s809L(7)).

The relevant debt provisions cover both the principle amount borrowed and the interest paid to service that debt and, where applicable, any debt created by the interest that is due on amounts borrowed (ITA2007/s809L(8)).

Example 1

In May 2015 John, a remittance basis user, gives £100,000 cash that is his foreign income and chargeable gains for that year, to his sister Elaine, a gift recipient. The £100,000 is the ‘qualifying property’.

In October 2016 Elaine takes out a loan with an offshore bank for £25,000, and buys a car in the UK which she makes available daily to John and John’s wife to use. Elaine uses some of the £100,000 to repay the loan.

There is a remittance because the qualifying property (the £100,000) of a gift recipient (Elaine) is used outside of the UK in respect of a relevant debt (the loan from the bank). The loan is a relevant debt because property is used in the UK for the benefit of a relevant person (ITA07/s809L(2a)).

Example 2

In February 2012 Emilie takes out a loan secured against her UK house with an offshore bank, and uses all the money to pay for her 16 year old grandson, Marco, to take flying lessons at Cambridge airfield.

Emilie’s son, and Marco’s father Adriano is a remittance basis user. Adriano gives his mother, Emilie, his holiday villa in Tuscany, purchased with £80,000 of his foreign income and gains. Emilie sells the villa and uses £40,000 to repay the loan.

Adriano has made a gift of the holiday home, which derives indirectly from Adriano’s foreign income and gains. Emilie is a gift recipient. Emilie sells the villa for £80,000; this derives wholly from the property (the villa) that Adriano gave to Emilie, so it is qualifying property of Emilie.

Emilie uses half of this qualifying property (£40,000) outside the UK in respect of a relevant debt (the loan secured on her house). The loan is a relevant debt because it is in respect of a service (the flying lessons) provided in the UK to a relevant person (Marco is a relevant person in respect of Adriano).