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HMRC internal manual

Residence, Domicile and Remittance Basis Manual

HM Revenue & Customs
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Remittance Basis: Exemptions: Business investment relief: Order of disposals: Multiple qualifying investments

Ordering rules must be applied where the appropriate mitigation steps [see RDRM34440] are not taken, following a part disposal, and the investor holds multiple qualifying investments (or a mixture of qualifying and non-qualifying investments) in;

  • the same target company [see RDRM34340], or
  • target companies within an eligible group [see RDRM34355].

(s809VN ITA2007)

All qualifying investments [see RDRM34330] in the same company are deemed to be a single qualifying investment and a single holding. Disposals from that single holding are treated as being made in the same order in which the qualifying investments were originally made, that is, a first in, first out order.

Example 1

In tax year 2011-12 Asif is a UK resident remittance basis taxpayer. He had substantial foreign earnings that year, and in June 2012 he makes an investment of £100,000 of his foreign earnings in Kadigan Limited, a private limited trading company. Asif receives 50,000 newly issued ordinary ‘A’ shares in the company in respect of his investment. The conditions applying to the making of his investment under the business investment relief provisions are met and Asif makes a valid claim on his 2012-13 Self Assessment tax return. The £100,000 foreign earnings are treated as not remitted to the UK.

In June 2013 Asif makes a further investment of £100,000 that consists entirely of foreign chargeable gains from 2012-13. As the value of Kadigan Limited has increased, Asif receives 40,000 newly issued ordinary ‘B’ shares for his investment. Once again, Asif makes a valid claim to business investment relief on his 2013-14 Self Assessment tax return in respect of the £100,000 investment of foreign chargeable gains, which are treated as not remitted to the UK.

In June 2014 Asif wants to buy a property in the UK and partially finances the purchase by selling the 40,000 ordinary ‘B’ shares in Kadigan Limited for £180,000. As Asif requires the money in the UK he does not carry out the appropriate mitigation steps and will be taxable on the foreign income or gains used to make the qualifying investment.

There has been more than one qualifying investment by Asif in Kadigan Limited so, for remittance basis purposes, the sale is matched against the June 2012 investment first, that is Asif’s original purchase of 50,000 ordinary ‘A’ shares. Asif is taxable on £100,000 of his foreign earnings from 2011-12 and this is regarded as remitted to the UK in 2014-15. Asif has also made a UK capital gain on the disposal of his ordinary ‘B’ shares and he reports this on his 2014-15 SA return. The 50,000 ‘A’ shares remaining invested in the company are treated as deriving from £100,000 foreign chargeable gains arising in 2012-13.  

These rules apply whether the investments are made by the taxpayer himself or by another relevant person or a mixture of the two. If the investments are derived, wholly or in part, from a taxpayer’s foreign income and gains they will be regarded as being a single holding and disposals will be on a first in, first out order.