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HMRC internal manual

Residence, Domicile and Remittance Basis Manual

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HM Revenue & Customs
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Remittance Basis: Remittance Basis up to 6 April 2008: Previous to 6 April 2008: Gifts (Alienation of income)

It may be claimed that income arising abroad has been alienated from the taxpayer’s possession because money has been ‘alienated’ abroad, (for example a gift made outside the UK to a third party, such as a close relative or non resident trust). This ‘offshore alienation’ means that the foreign income is no longer the original taxpayer’s income when it is received in the United Kingdom.

It is sometimes possible for this claim to be challenged on the grounds that:

(i) the gift was not completed until the income was received in the United Kingdom or

(ii) that financial consideration for the ‘gift’ has been received in the United Kingdom

A taxable remittance is made if the amount that has been identified as entering the UK is income to which the taxpayer is entitled at the point that it enters the UK. This was the principle established in Timpson’s Executors v Yerbury (30 TC 155), in which Lord Wright said (p180):

‘I am of opinion, if it comes here as her income, that the fact that on arrival it is applied, in accordance with her directions, in payment to others does not affect its chargeability to her. I assume that the particular part of her income must not have been alienated, by assignment or trust, away from her before the actual sum was remitted to the United Kingdom. But that, as already explained, is not true in this case.’

Example

James is a UK resident remittance basis user who loans money from his overseas bank account to the offshore bank account of a company in the British Virgin Islands that he controls. The company then transfers that money to its UK solicitors in order to purchase a company property in the UK. By transferring the cash to the company outside of the UK James has gifted ‘alienated’ his money. Because the BVI company is not a transparent entity, James has not made a taxable remittance.

Example

Before 5 April 2008 Shahina, who is resident but not domiciled in the UK settled £5,000,000, consisting of her foreign capital gains into a Jersey resident trust. The trustees of that trust then acquired a property in London for £2,000,000 in which Shahina lives rent free.

This is not regarded as a taxable remittance to the UK by Shahina and would not therefore attract a charge to tax.

If the remittance represents money from investments etc that arose in the period before the taxpayer became resident in the UK there is no charge when such money is later brought to the UK. However, it is possible that even if the majority of the funds are from periods before the taxpayer became resident in the UK that there will also be an amount of bank interest that accumulated in the period between the person becoming UK resident and the date on which the funds were brought to the UK.