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HMRC internal manual

Residence, Domicile and Remittance Basis Manual

HM Revenue & Customs
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Remittance Basis: Amounts remitted: Quantification: Condition C - remittances of relevant income or chargeable gains - relevant debt

Where the qualifying property of a gift recipient is used outside the UK (directly or indirectly) in respect of a relevant debt, 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 stems (ITA07/s809P(7)).

Refer to Chapter 3 for details about Condition C and qualifying property.

Qualifying property 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)).

When, taken together with any amounts that have been previously remitted (or treated as having been remitted), the taxable amount of income or gain that is treated as having been used outside of the UK ‘in respect of a ‘relevant debt’ cannot be greater than the amount of the original foreign income and gains (ITA07/s809P(12)).

Example 1

In May 2015 Klimt, a remittance basis user, transfers £100,000 cash that is part of his of his relevant foreign income for that year to his sister Helena, a gift recipient (refer to the earlier example). The £100,000 is the ‘qualifying property’.

In October 2016 Helena takes out a loan with an offshore bank for £25,000, and buys a car in the UK which she makes available to Klimt and his wife to use.

Helena uses some of the £100,000 to repay the loan.

There is a remittance because the qualifying property (the £100,000) of a gift recipient (Helena) is used outside of the UK in respect of a relevant debt (the offshore loan). The loan is a relevant debt because property is used in the UK in by a relevant person (Klimt and his wife). The amount remitted is £25,000.

Example 2

Fraser, who is a remittance basis user, purchases some non-UK shares and bonds for £80,000 in January 2012 using his foreign income and gains.

Fraser makes a gift of these shares and bonds to his brother, Victor. In March 2012 Victor takes out a loan of £40,000 with an offshore bank to purchase a designer table and chairs which he imports to the town house which is used by his brother Fraser. Victor then uses £40,000 of the shares to pay off the loan.

Fraser has made a gift (the shares) that derives from his foreign income and chargeable gains (the £80,000) to Victor who is then a ‘gift recipient’. The shares are ‘qualifying property of a gift recipient’. The loan taken out to purchase the furniture is a ‘relevant debt’ as it is property brought to the UK for the benefit of a relevant person (Fraser).

The qualifying property (the shares) is used outside the UK in respect of this relevant debt. The amount of the remittance is equal to the relevant income or gains from which the qualifying property stems, that is, £40,000 (s809P(11)(b)). Also refer to RDRM35200 Mixed Funds.