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HMRC internal manual

Residence, Domicile and Remittance Basis Manual

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Remittance Basis: Exemptions: Business investment relief: Potentially chargeable events - disposal of all or part of a holding (s809VD ITA2007)

Where:

  • an investor disposes of some or all of their shares in the company, or
  • a loan is repaid either in part or in full

the investor must take the appropriate mitigation steps [see RDRM34440] if the foreign income or gains that were originally invested are not to be treated as remitted to the UK. (s809VI ITA2007)

If the consideration for a disposal is paid in instalments, the disposal will be treated as a series of separate disposals. For the purposes of the business investment relief each of these disposals is a separate potentially chargeable event. (s809VH(8) ITA2007)

Example 1

Torsten invests in a qualifying company [see RDRM34340] by way of a loan of £400,000 on 13 May 2013 using his foreign income. The company draws down the whole of this amount on 17 June 2013. So Torsten’s investment meets the qualifying criteria.

The company trades successfully and Torsten receives interest from the company on the loan. This is not an extraction of value as it has been paid to Torsten in the ordinary course of business and on arm’s length terms, Torsten declares the interest he receives on his Self Assessment returns.

After a number of lucrative trading years the company repays all of its investors, including Torsten, the whole of their original loans, which in Torsten’s case is £400,000.

Torsten receives the repayment on 20 May 2016. On 20 June 2016 Torsten makes a qualifying investment in another eligible trading company of £300,000 this time receiving newly issued shares and makes a valid claim to relief on his 2016-17 tax return. On 26 June 2016 he transfers the balance of £100,000 to his Jersey bank account.

Torsten has taken the appropriate mitigation steps within the grace period allowed for the whole of the repayment, and so is not treated as having made a UK taxable remittance.

Example 2

Circumstances are the same as in the above example, only this time instead of receiving the £400,000 in one lump sum Torsten receives the repayment of his loan in the following instalments:

  • £125,000 on 20 May 2016
  • £175,000 on 20 November 2016
  • £100,000 on 21 May 2017.

Torsten decides to:

  • invest the £125,000 in another qualifying eligible company as a loan on 28 June 2016
  • transfer £150,000 to his Jersey bank account on 30 November 2016 leaving the balance of £25,000 in his UK bank account
  • invest £75,000 from the last instalment in a second qualifying eligible company on 11 June 2017 this time receiving shares, leaving a balance of £25,000 in his UK bank account.

In these circumstances Torsten has made a total UK taxable remittance of £50,000; this is made up as follows:

  • £25,000 received on 20 November 2016, and
  • £25,000 received on 21 May 2017.
He should declare these remittances on both his 2017-16 and 2017-18 Self Assessment returns respectively. Torsten will also have to make a BIR claim for £125,000 on his 2016-17 return and £75,000 on his 2017-18 return.