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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: exempt property: disposal proceeds; agency fees (ITA07/s809Z8)

Agency fees are defined in ITA07/s809Z8 as fees or other incidental costs of a disposal deducted from sale proceeds before they are paid to the seller. When exempt property is sold the disposal proceeds less any agency fees must be taken offshore or invested in order to qualify for the exemption.

Example 1

Suzannah, a UK resident non domiciled remittance basis taxpayer, brings an antique, purchased overseas using £75,000 of her foreign income, to the UK with the intention of selling it through a London auction house. The antique is sold at auction to an unrelated third party for £120,000. Three weeks later the auction house transfers £108,000 to Suzannah’s UK bank account, having deducted a seller’s fee of 10%. A week later Suzannah transfers the full £108,000 to her Jersey bank account.

The seller’s fee is an incidental cost of disposal; the disposal proceeds that must be taken offshore are £108,000. Suzannah has therefore complied with Condition E and the £75,000 foreign income from which the vase was derived is not treated as remitted to the UK. The gain that Suzannah has made on the sale of the vase is a deemed foreign gain.

Fees or other incidental costs that are charged by another relevant person are not treated as agency fees. This exclusion does not apply to the extent that the fees or costs:

  • relate to a service actually provided by the relevant person, and
  • do not exceed the amount that would be charged if the service were provided on commercial arm’s length terms. (ITA07/s809Z8(6) and (7))

Example 2

Mario is a UK resident remittance basis taxpayer who owns a painting by a famous Italian artist purchased with £300,000 of his foreign chargeable gains. Mario’s wife, Antonia, works in the art market as an agent, matching buyers with sellers.

Mario brings the painting to the UK and asks Antonia to find a buyer. Antonia agrees a price of £400,000 with an unrelated collector in Edinburgh and receives the purchase price direct from the purchaser. Shortly afterwards Antonia pays £200,000 to Mario, having deducted a fee of 50%, and Mario immediately takes the £200,000 offshore. Antonia normally charges a fee of 10% to her clients.

As Antonia is a relevant person whose fees have not been charged on arm’s length terms, those fees are not deductible from the disposal proceeds. As the fee paid by Mario is not deductible from the disposal proceeds then the appropriate mitigation steps must be taken on the full disposal proceeds of £400,000.

As Mario has not taken the whole of the £400,000 out of the UK within the grace period, Condition E of the exempt property relief has not been met and Mario will be treated as having remitted £300,000 of his foreign chargeable gains from which the painting was derived. In addition, the gain on disposal is a UK chargeable gain.