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HMRC internal manual

Residence, Domicile and Remittance Basis Manual

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Remittance Basis: Amounts remitted: Quantification: Conditions A and B - remittances in respect of relevant debt

Where foreign income or gains are used outside of the UK in respect of a relevant debt RDRM33040 the chargeable amount is the amount of foreign income or gains so used (ITA07/s809P(4)) (example 1 and 2).

Similarly, if anything, for example an asset, which derived from foreign income or gains is used outside the UK to service a relevant debt then the amount of the remittance is the amount of the income or gains from which the asset used to service the debt was itself derived (ITA07/s809P(5)) (example 3 and 4).

Foreign income or gains may be used outside the UK to redeem or service a debt only part of which is a ‘relevant debt’ within the meaning of ITA07/s809L(7). In such cases, the amount that is taxable as an ‘amount remitted’ is, if it would otherwise be greater, limited to the amount that is attributable to that part of the debt which is a relevant debt (ITA07/s809P(10)) (example 5).

The taxable amount of foreign income or gain that is treated as having been remitted because of these provisions, taken together with any amounts that have been previously remitted (or treated as having been remitted), cannot be greater than the amount of the original foreign income and gains (ITA07/s809P(12)).

Example 1

In May 2011, Katrina, a remittance basis user, borrows £12,000 from an overseas bank to buy shares in a UK company. This is a relevant debt.

In tax year 2011-12 Katrina uses £4,600 of her relevant foreign income to pay the interest and to repay some of the amount borrowed. The chargeable amount is £4,600.

Example 2

On 6 April 2015, Gary, a remittance basis user, borrows money from an overseas bank to buy an apartment in Solihull. Payments are due on the first day of each month from May 2015 onwards. The first 12 payments are on an interest-only basis. Gary pays £1,000 interest each month to the overseas lender from his overseas account with the same bank, into which Gary ensures a sufficient amount of his relevant foreign earnings are paid directly to cover the repayments.

From 1 May 2016 the payments increase to a fixed amount of £2,500 each month as Gary starts to repay the capital amount of the loan as well as the interest. The payments continue to be met from the same account of relevant foreign earnings.

The loan is a relevant debt because it is respect of property (the apartment) which is used in the UK by a relevant person (Gary).

Gary has made taxable remittances in 2015-16 of £12,000, that being the relevant foreign earnings used to service the relevant debt. In 2016-17 Gary has made taxable remittances of £30,000, being the amount used to both service and repay the relevant debt.

Example 3

Ali, a remittance basis user, purchases some sculptures in Sweden in October 2012 for £80,000; he takes out an interest-free loan of £80,000 with his US bank to fund this purchase, repayable within 1 year.

In November 2012 he gives them to his wife as an anniversary gift. She initially keeps them at her mother’s home in Stockholm, but 6 months later in March 2013 she decides to bring these sculptures to the UK to display in her UK garden.

In October 2013 Ali arranges with the US bank that he will repay the loan by giving them an oil painting which is currently in his apartment in Miami. Ali had purchased the painting in May 2011, using £50,000 of his relevant foreign earnings and £30,000 of capital inherited from an uncle.

The relevant debt is serviced by the oil painting, which derives, in part, from Ali’s relevant foreign earnings (refer to the earlier example). Ali has made a taxable remittance in 2013-14 of £50,000.

Note: For the purposes of this example assume there is no chargeable gain on the transfer of the painting to the bank.

Example 4

Francine, a remittance basis user, has a Spanish-style courtyard created at her house in Brighton. She takes out an unsecured loan of £40,000 from her French bank which she uses to pay the specialist Spanish contractor.

Francine has several French government bonds, which she purchased entirely from her relevant foreign income, and a German government bond which she acquired using her foreign chargeable gains. These bonds are each worth £10,000.

In September 2010 Francine gives the German bond to her bank as part repayment of the loan.

The relevant debt is serviced by the German bond which derives wholly from Francine’s foreign chargeable gains, and is used outside the UK in respect of this relevant debt (refer to the earlier examples). Francine has made a taxable remittance in 2013-14 of £10,000.

Example 5

In August 2011 Karen, a remittance basis user, uses an interest-free £10,000 overdraft facility on her Jersey bank account to pay £8,000 of UK school fees for her 14 year old daughter Lauren. The remaining £2,000 of the facility is used to pay for Lauren to attend a summer school in France organised by a French university.

Karen repays the overdraft from her relevant foreign earnings between August and November 2011.

Karen has made a taxable remittance in 2011-12 of £8,000 relevant foreign earnings, that being the part of the debt that is in respect of a service provided in the UK (refer to the earlier example) which is thus a ‘relevant debt’.