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HMRC internal manual

Residence, Domicile and Remittance Basis Manual

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Remittance Basis: Amounts remitted: Quantification: Condition C - remittances of relevant income or chargeable gains - property

Note: Refer to below for remittances that involve relevant debts (ITA07/s809L(4)(c)).

Where qualifying property of a gift recipient is brought to, received or used in the UK, or is given in consideration for a service provided in the UK which is enjoyed by a relevant person, the amount remitted is equivalent to the amount of the relevant foreign income or chargeable gains of which the qualifying property consists, or from which the qualifying property derives (ITA07/s809P(6)).

Refer to RDRM33260 for details about Condition C and qualifying property.

The amount remitted or treated as having been remitted under these provisions cannot be greater than the amount of the original foreign income or gains (ITA07/S809P(12)).

Example 1(a)

In May 2015 Klimt, a remittance basis user, transfers £100,000 of his relevant foreign earnings for that year to his sister Helena, a gift recipient (refer to the earlier example).

In October 2016 Helena transfers half of this money to the UK and passes it to Klimt’s wife. The qualifying property here is the money that Klimt gifted to Helena. The amount remitted is equal to the amount of Klimt’s ‘relevant income’ which the qualifying property consists of, that is, the £50,000.

Example 1(b)

In May 2015 Klimt, a remittance basis user, transfers £100,000 of his relevant foreign earnings for that year to his sister Helena, a gift recipient (refer to the earlier example).

In October 2016 Helena uses half of this money to buy a car in France which she makes available to Klimt’s wife to use in the UK.

The qualifying property here is the car, which derives from the money that Klimt gifted to Helena. The amount of the taxable remittance is equal to the relevant income from which the property derived, that is £50,000.

Example 2

John, a remittance basis user, transfers a yacht to his non-resident sister Elaine. John had purchased the yacht outside of the UK for £100,000 using his foreign income and chargeable gains for that year (refer to the earlier example).

Elaine pays him £20,000 cash in return. Elaine is still a gift recipient in respect of the other £80,000.

In December 2017 Elaine sells the boat and gives John’s two sons Pip and Harry £10,000 each from the proceeds, which they both bring into the UK. Pip is 20 years old so is not a relevant person in relation to John, but Harry is only 15. In this case the qualifying property is the £10,000 which is derived the boat which was itself derived from the foreign income and gains that John gave to Elaine.

The amount of the taxable remittance is equal to the relevant income and gains from which the property derived, that is £10,000. Also refer to RDRM35200 Mixed Funds.

Example 3

Linda’s husband’s family has owned a holiday house in Scotland for many years (refer to the earlier example). In February 2012 her nephew Adam, a remittance basis user transfers £220,000 of his foreign income and gains to his aunt, Linda, the gift recipient, which she uses to book herself on an around-the-world cruise. Adam gives the money to Linda on the agreement that Linda will provide his wife Clare, a keen painter, with access to the Scottish property.

Several months later Linda provides Clare with an agreement saying that she can use the Scottish house, for which Clare pays nothing.

The house cannot be said to ’derive from’ the income or gains but is ‘other property’ used in the UK and enjoyed by a relevant person (Clare). As the operation which brought the house within Condition C was done with reference to the gift or to enable or facilitate the gift it is qualifying property and Condition C is met.

There is a remittance and tax is chargeable on Adam. The amount of the remittance is equal to the relevant income from which the qualifying property stems, that is £220,000 (s809P(11)(c)).

Example 4

James is a remittance basis user, who gives £1,000,000 of overseas income to his adult son Charles.

Charles is not resident in the UK but he owns a house in London. Charles transfers ownership of the house to his father, James. James is a ‘gift recipient’.

As the operation which brought the house within Condition C was done with reference to the gift or to enable or facilitate the gift, it is qualifying property and Condition C is met. The amount of the remittance chargeable on James is equal to the overseas income given to Charles - that is, £1,000,000.

Example 5

Lucinda is a remittance basis taxpayer who gives £800,000 of overseas income to John, her adult brother who lives outside the UK.

John uses £650,000 of other money to purchase a house in the UK and then makes that property available to Lucinda (the same principle applies to any other ‘relevant person’) to live in. The operation which brought the house within Condition C was done with reference to the gift or to enable or facilitate the gift and so it is qualifying property and Condition C is met. The amount of the remittance is equal to the relevant income from which the qualifying property stems, that is £650,000.

Example 6

Samantha, a remittance basis user, gives £15,000 of overseas income to Jacques, her USA resident father.

Jacques arranges to pay the UK school fees for James, Samantha’s 5 year old son. The fees due are £4,000 a term and there are three terms a year. In the tax year covered by a return on which the remittance basis is claimed, two amounts of school fees are paid.

The amount of the remittance is equal to the relevant income from which the qualifying property stems, that is £8,000.