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HMRC internal manual

Residence, Domicile and Remittance Basis Manual

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Remittance Basis: Exemptions: Relevant services provided in the UK

Payments for services provided in the UK for the benefit of a ‘relevant person’ is generally taxable remittances (refer to RDRM33130 Condition A - provision of service).

However ITA07/s809W provides that some payments made for services provided in the UK that are strictly within Condition A at ITA07/s809L(2)(b) that are ’relevant UK services’ are to be treated as not having been remitted to the UK.

Foreign income or gains (or property derived from them) used to pay for a service provided in the UK for the benefit of a relevant person is not treated as a remittance if:

  • the service provided in the UK relates wholly or mainly to property situated outside the UK (Condition A), and
  • the whole of the payment for that service is made to a bank account or bank accounts held outside the UK by or on behalf of the provider of the service. (Condition B).

A service is regarded as having been provided in the UK if the providers of that service are based in and give that service in the UK.

Where a service is provided in the UK for the benefit of a relevant person and the UK provider is in a chain of providers, for instance where legal advice is required in several jurisdictions, unless the qualifying conditions described above apply, payment made out of or deriving from foreign income or gains that are or relate to the service in the UK is a remittance to the UK.

For the purposes of applying the exemption ‘wholly or mainly’ means more than half. Wholly or mainly relates to the service provided, not the property, and is, in general, judged by reference to work done, normally time spent.

However, if advisers value the measurement of work done using a variety of factors, such as, for example a basis of both time and fee rate (e.g. use of a team specialising in international property), it is appropriate that this should be reflected in the considerations of ‘wholly or mainly’. Other factors may include the fee and time rate if specialist advice was required, split of assets between UK and foreign situs, and the place of research or administration.

If the services (and thus the consideration due for that service) can be clearly and specifically identified as relating either to UK assets or to non-UK assets and it is possible to separately identify this from the fees structure and invoicing, the work relating to UK assets will not be regarded as meeting the ‘wholly or mainly’ test at Condition A in section 809W. This does not necessarily require a separate advice letter, report or invoice (‘split-invoice’) to be issued, as long as the individual is clearly able to identify from the invoice to what his payments relate.

If there is a split contract for services relating to UK and non-UK assets you should accept the computations if the split bears a reasonable resemblance to the actuality of service provided.

Any attempt to use artificial or otherwise unrealistic cost structures, for example to increase the costs attributed to non-UK property advice work against UK-property advice work should be strongly resisted.

Whether the ‘wholly or mainly’ test is met will be determined by the facts in each case.

Each case will be dependent on its facts but the default position is that where the consideration for a service provided in the UK is, or derives from, an individual’s foreign income or gains (s809L(3)(a) or s809L(3)(b)), there is a taxable remittance. If the service involves offshore property but it is unclear whether this exemption applies, you should k all surrounding documentation such as invoices, time-sheets, portfolio analysis etc. to decide if the service related wholly or mainly to overseas or UK property.

Example 1

Chandra, a remittance basis user, engages an investment manager based in the UK to manage her portfolio of investments in foreign stocks and shares of overseas concerns. Payment for this service is made from Chandra’s Guernsey bank account (containing her foreign income) to the investment manager’s Jersey bank account.

The service - the management of the portfolio - is provided in the UK to Chandra. However the service relates wholly to property outside the UK and payment has been made to a bank account held outside the UK. Both Condition A and Condition B RDRM33100 of the service exemption are met and therefore the payment for the services will not be treated as a remittance to the UK.

Example 1a

The circumstances are the same as for example 1 only this time Chandra uses her Guernsey account to pay part of the cost of the service using her capital and the rest using her foreign income from her relevant foreign earnings. She pays directly to the investment manager’s Jersey bank account.

As in example 1, a service is provided in the UK and the service relates wholly to property outside the UK. Part of the payment for the service made out of her capital would not be taxable because it is capital. The remainder of the payment(s) using her relevant foreign earnings will be exempt as above.

Example 1b

The circumstances are the same as for example 1 only this time Chandra uses her Guernsey account to pay part of the cost of the service out of her relevant foreign earnings directly to the investment manager’s UK bank account.

As in example 1, a service is provided in the UK and the service relates wholly to property outside the UK, so Condition A is met. However the whole of the payment for the service has not been made to a bank account or accounts held by the investment manager outside the UK. So the exemption provided by s809W would not be due as Condition B requires that the whole of the payment for the service be made to a bank account or accounts held outside the UK.

Example 2

Ritika, a remittance basis user, engages an investment manager based in the UK to manage her investment portfolio which covers assets both in and outside the UK and which changes throughout the year. Payment for the service is made from Ritika’s Bermudian account to the investment manager’s Jersey bank account.

Condition B for the exemption has clearly been met. Whether Condition A is met depends on whether the service provided relates wholly or mainly to property situated outside the UK.

If the advice relates to assets and investments held by Ritika, and/or her obligations that ensue from these (e.g. completing valuation/ownership details to comply with requirements in the jurisdiction where the assets are based), and the advice relates to both UK-situs and offshore situs assets, it will depend on the split of the assets.

For example, if she holds, say, 60% foreign assets, and the advice given relates to all of the assets held in the portfolio, then the ‘wholly or mainly’ test would be met.

If the advisors are considering changes in Ritika’s portfolio or the acquisition of UK assets and their research is UK-centric, then the ‘service’ provided in the UK is likely to relate to UK property, regardless of what is eventually acquired.

Example 3

Henri, a remittance basis user, creates a non-resident settlement of which he is a beneficiary using £1,000,000 foreign income and gains. The trustees of the non-resident trust employ an investment manager in the UK to manage their portfolio of assets which are wholly outside the UK. The trustees use some of the settled money to pay fees of £20,000 to the investment manager’s Guernsey bank account.

The body of trustees is a relevant person RDRM33030 and therefore the payment for the service would be treated as remitted to the UK (£20,000 of the £1,000,000) by Henri under ITA07/s809L.

Condition A of the exemption is met because the service relates wholly to property situated outside the UK; Condition B of the exemption is also met, because payment for the service has been made to a bank account held outside the UK. Therefore the £20,000 is not treated as remitted.

Example 4

Charlotte, a remittance basis user, purchases a return air ticket using her foreign income. The ticket is to travel from the UK to Belgium and return. The ticket was purchased from a UK company but payment was made into the company’s offshore bank account.

Because part of the travel service was provided in the UK (the journey begins and ends in the UK) there is a remittance to the UK. The exemption provided for at ITA07/s809W is not due as the service does not relate to property.

Example 5

Sarah, a remittance basis user, purchases an air ticket using her foreign income and gains to travel from Sweden to Holland, using a UK based booking agency. Payment is made into the agency’s offshore bank account.

There is a ‘service provided in the UK’, which is the agent’s booking services, so the part of the cost of the service that relates to the agency’s booking fee is a remittance (although not the cost of the flight between Sweden and Holland as no part of this service is provided in the UK).

Because the booking service provided in the UK does not relate to property at all, the exemption cannot apply.

Example 6

Micho, a remittance basis user, employs UK-based agents to prepare his US tax return. He uses his foreign income to pay for this service, paying directly into the agent’s offshore bank account. This is a service provided in the UK.

Advice on the completion of a non-UK tax return would generally be within the exemption providing the majority of the advice relates to non-UK property; for example:

  1. Micho’s major source of income is UK salary and other UK employment benefits, and most of the work relates to this.

This is service work relating to non-asset related income, e.g. employment income, so whether UK employment or not there is no property so the exemption at s809W cannot apply.

  1. Most of the work undertaken is in respect of his UK sources of income and gains, albeit these are small compared to his world wide income and gains.

The service relates to investment income/gains from UK sources so it is outside the exemption.

  1. Most of the work undertaken is in respect of advice relating to investment income/gains from non-UK sources.

The service provided relates to investment income/gains from non-UK sources, so it is within the exemption if all other conditions are met.

Please make a full submission to Specialist Personal Tax, PTI Advisory, Foreign Income and Remittance Basis Team if you have any cases where the application of this exemption is not clear.