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HMRC internal manual

Residence, Domicile and Remittance Basis Manual

Remittance Basis: Identifying Remittances: Condition D: Qualifying disposition - definition

In order for Condition D to be met, there must be a qualifying disposition (or disposal) and a connected operation RDRM33430 associated with it (ITA07/S809O(3) and (4)).

A ’qualifying disposition’ is a disposition (or ‘disposal’) of money or other property that is, or derives (wholly or in part, and directly or indirectly) from, income or chargeable gains of the individual, to someone else in circumstances where property of that other person is, or somehow facilitates enjoyment by a relevant person of that property or some other service in the UK.

It is a disposition that:

  • is made by a relevant person RDRM33030,
  • is made to, or for the benefit of, a person who is neither a relevant person nor a gift recipient and who then uses some other of their property in such a way that a relevant person enjoys that ‘other’ property where:

    • the property is brought to, received or used in the UK by the relevant person, or
    • the property is used as consideration for a service enjoyed in the UK by the relevant person, or
    • the property is used outside the UK in respect of a relevant debt, and

This means that where someone gives their property to someone else and property of that other person is ‘remitted’, the original foreign income and gains may remain taxable due to Condition D.

Example 1

John personally owns a country estate in Cornwall, in an area of outstanding natural beauty. His friend Janet wishes to use the mansion for several important family functions.

Janet is a remittance basis user. She owns a foreign yacht which she bought using her foreign income and gains. On 2 March she disposes of the yacht to a non-resident company for less than a third of its cost and less than its current value.

John has a controlling interest in that non-resident company. In October, with reference to the transfer of the yacht, John allows Janet full and exclusive use of the estate, rent-free.

Although Janet enjoys John’s property in the UK, John is not a gift recipient (the yacht was given to his company, not to John). Condition C cannot therefore apply.

The company is not a relevant person (as Janet is not a participator). John is not a relevant person in relation to Janet either.

There is a qualifying disposition because:

  • There is a disposal of property (the yacht) which derived from Janet’s income or chargeable gains (ITA07/S809O(4)(c))
  • The disposal was made by a relevant person (Janet) (ITA07/S809O(4)(a))
  • The disposal was for the benefit of John (although the disposal was not made directly to John, he benefits from it through his ownership of the company) (ITA07/S809O(4)(b))
  • John’s property is enjoyed in the UK by a relevant person (Janet) (ITA07/S809L(5)(a) and ITA07/S809O(4)(b)).

In this example Janet’s advantage is due to a connected operation RDRM33430 (ITA07/S809O(3)) and Condition D will be met. Some or all of the foreign income or gains used by Janet to acquire her yacht will be remitted.

Note: In the context of another transaction, John could be a gift recipient in relation to Janet, and Condition C could apply to that transaction.