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HMRC internal manual

Residence, Domicile and Remittance Basis Manual

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HM Revenue & Customs
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Remittance basis: sales of exempt property (ITA07/s809YA)

Up to 5 April 2012, where exempt property was sold or otherwise converted into money while in the UK, the foreign income and gains with which the property was purchased were treated as having been remitted to the UK (see RDRM34080). Under new provisions effective from 6 April 2012, sales of exempt property will not give rise to a taxable remittance, provided all the following conditions are met:

Condition A: The exempt property must not be sold to a relevant person. (s809YA(2))

Condition B: The sale must be made on commercial arm’s length terms. (s809YA(3))

Condition C: After the sale has taken place no relevant person;

  • has any interest in the property,
  • is able or entitled to benefit from the property by virtue of any interest, right or arrangement or
  • has any right to acquire such an interest in the future. (s809YA(4))

Condition D: The whole of the disposal proceeds must be released by the final deadline. The final deadline is the first anniversary of 5 January following the tax year in which sale takes place. As an example, for a sale taking place in February 2013 the proceeds must be released by 5 January 2015. Proceeds or instalments are released on the day on which they first become available for use by or for the benefit of a relevant person. (s809YA(5), (6) and (10))

Condition E: Within 45 days of the date on which the sale proceeds are released, they must be taken offshore, used to make a qualifying investment or a mixture of the two. Where the proceeds are paid in a series of instalments, each instalment must be taken offshore or used to make a qualifying investment, or a mixture of both, within 45 days of the date on which it is released. (s809YA(7))

If any sale proceeds are released in the 45 days ending with the final deadline (see condition D), they must be taken offshore, used to make a qualifying investment or a mixture of both, on or before the final deadline. (s809YA(8))

Condition F: If Condition E is met wholly or in part by making a qualifying investment, the investor must claim relief for the reinvestment as part of their Self Assessment tax return, on or before 31 January following the end of the tax year in which the property is sold. (s809YA(9))

If conditions A-F are all met, the foreign income and gains from which the exempt property is derived are treated as not having been remitted to the UK, even though the property has ceased to be exempt property. (s809YC(2))

Example 1

Mostyn was taxed on the remittance basis in 2012-13. During the course of the year, Mostyn brought an antique vase, purchased using £75,000 of his foreign income, to the UK to be displayed at an exhibition. The vase is exempt property under section 809Z ITA07.

During the exhibition Mostyn receives an offer for the vase from a fellow collector who lives in the UK and who is not a relevant person. Mostyn accepts the offer and receives £75,000 (market value) in full payment on 18 July 2014 into his UK bank account.

Mostyn transfers £50,000 from his UK bank account to his Jersey bank account on 20 July 2014 and a further £25,000 on 5 August 2014.

As Mostyn has transferred the whole of the sales proceeds offshore within 45 days of them becoming available to him, all of conditions A-F have been met. The foreign income or gains with which the vase was purchased are not treated as remitted to the UK.

The result would have been the same if Mostyn had invested the £75,000 proceeds in a qualifying business within 45 days and made a valid claim to business investment relief. Mostyn could also have invested part of the proceeds in a qualifying business and taken the balance outside the UK.

Example 2

Arjun, a remittance basis user, brings to the UK an antique Aubusson carpet, bought using £150,000 of his foreign income, to be displayed at an exhibition. The carpet is exempt property under s809Z ITA07.

During the exhibition Arjun sells the carpet on arms length terms for £200,000 to a UK collector who is not a relevant person.

Due to the terms of the sale agreement of 12 March 2013, Arjun receives the payment in instalments. The first instalment is released to Arjun on 4 July 2013, the second instalment is released to Arjun on 22 February 2014, with the third and final instalment being released to Arjun on 2 January 2015.

Arjun transfers the first instalment offshore to his Jersey bank account on 8 July 2013. As this is within 45 days he has met Condition E for this instalment.

Arjun uses the second instalment to invest in a qualifying business under the business investment relief provisions (see RDRM34310 onwards). This instalment was released on 22 February 2014, and Arjun makes his investment on 4 April 2014. Again this is within 45 days so Condition E is met.

As the final instalment is only released to Arjun on 2 January 2015 he only has until 5 January 2015 (3 days), to either take the funds offshore or to invest them in a qualifying business, as this is the final deadline date. Arjun takes the funds offshore on 4 January 2015 by transfering them to his Jersey account thereby meeting the conditions for the instalment.

As Arjun has met all of the conditions at s809YA ITA07 the foreign income from which the exempt property is derived is not treated as having been remitted to the UK, even though the property has ceased to be exempt property.

The gain element of the sale proceeds are treated as if they were Arjun’s foreign chargeable gains (s12 TCGA’92), because all the conditions at s809YA have been met (see RDRM34280).

Details of the qualifying investment must be entered in Arjun’s Self Assessment tax return so that relief from UK tax can be claimed. [I deleted what was written next as the notice in s809YD(9) only applies if Arjun wants the gain to be a UK gain and the example does not suggest this is the case]

The exemption for sales of exempt property is not available where the sale is part of a scheme or arrangement that has a tax avoidance purpose. (ITA07/s809YA(11))