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HMRC internal manual

Residence, Domicile and Remittance Basis Manual

Remittance Basis: Exemptions: Business investment relief: Qualifying investments - condition B (s809VF ITA2007)

Condition B

In addition to making an investment in a target company, the relief is available provided that:

  • no relevant person has either directly or indirectly obtained a benefit or become entitled to obtain a benefit, and
  • there is no expectation that such a benefit will be received

which is related, directly or indirectly, to the making of the investment. (s809VF ITA2007)

A benefit for these purposes can include anything (for instance money in any form, property, capital, goods or services of any kind) that is provided to a relevant person [see RDRM33030 for a definition of relevant person]. In particular it includes, but is not limited to, the provision of anything that:

  • would not be provided by the company to the relevant person in the ordinary course of business
  • would be provided but on less favourable terms, or
  • would not be available at all in the absence of the investment.
Example 1

Joaquin invests £250,000 in a qualifying company obtaining newly issued shares for his investment. Joaquin does not become either a director or an employee of the company.

All of the existing company directors have the use of company vehicles but these are unavailable to any other individual or current employee.

The company wish to thank Joaquin and so provide him free of charge with a company vehicle.

Joaquin’s investment has failed Condition B as the benefit, the company vehicle, is related directly to the making of the investment. It would not have been available at all in the absence of Joaquin’s investment. Therefore Joaquin’s £250,000 investment will be a taxable remittance unless he takes the appropriate mitigation steps.

The benefit is not taxable on Joaquin as he is not an employee or director of the company.  

Note that a benefit for these purposes does not include anything that would be provided to the relevant person in the ordinary course of business on arms length terms. A benefit will be related to the making of the investment if it is:

  • directly or indirectly attributable to the making of the investment (whether received before or after the investment is made), or
  • it is reasonable to assume that the benefit would not be available in the absence of the investment.

This means that when money or other property is brought to the UK to make a qualifying investment, those funds qualify for the business investment relief only if any subsequent payments or benefits made available to the investor represent a commercial return for their investment, or are benefits made available on arm’s length terms. So, for example;

  • dividends that are paid out of profits, or
  • interest that is charged on a loan of money

that any similar investor might reasonably expect to receive would not disqualify the investment from receiving the relief.

Where benefits are not provided in the normal course of business, the investment may be treated as a remittance. So, for example, a yacht provided to a relevant person at no charge, by a boat hire company in which they had made an investment, fails Condition B but one hired out at the full market rate would not.

Example 2

In March 2012 Todd is invited to invest some money in a private limited company, Company B. Company B expects to start trading commercially in the three to four months after Todd agreeing his investment.

Todd has been a remittance basis taxpayer for a number of years and decided to invest £500,000 of his foreign income and gains. On 6 April 2012 Todd transfers the money to his UK bank account and on 1 May 2012 (25 days later) he makes his investment in Company B. In return for this investment Todd is issued with shares in Company B and he becomes a working director of the company, receiving a salary at a market rate. Company B commences trading on 1 June 2012.

The investment was made within 45 days of Todd bringing his foreign income and gains to the UK and Company B began commercial trading within two years of the investment having been made. Conditions A and B are both satisfied and so Todd’s foreign income and gains qualify to be treated as not remitted to the UK provided Todd makes a valid claim on his 2012-13 tax return.

Todd is in receipt of a salary for his work as a director and, because Company B is profitable, he and other shareholders are paid a dividend on 31 July 2013. These payments would reasonably have been expected to be made to any other similar director and shareholder of the company and are taxable in the UK so are not “benefits” for the purpose of Condition B. Todd’s foreign income and gains continue to be treated as not remitted to the UK.