Withdrawal of concessional treatment for commercial loan arrangements.

Under the rules there is a remittance of foreign income or chargeable gains if:

a. money or other property is brought to, or received or used in the UK by or for the benefit of a relevant person, and

b. foreign income or gains are used outside the UK (directly or indirectly) in respect of a relevant debt.

Where, as a remittance basis taxpayer, you:

 have obtained a loan in the UK or overseas, secured using foreign income or gains that remains overseas, and

 remit part or whole of that loan to the UK

you are considered to have remitted foreign income or gains to the extent of the loan amount remitted.

For example, if you have a £1 million loan facility secured by foreign income or gains of £1m, and £100,000 is borrowed and brought to the UK, then you are making a taxable remittance of £100,000 at that point.

This has always been HMRC’s view of the law. However, it was recognised that there is another potential source of taxable remittances in respect of secured loans. If you made loan repayments using a different source of foreign income or gains you would make a second remittance at that point. The result would be taxable remittances of double the amount of loan brought to the UK.

As a result in 2010 a concession was published in HMRC's guidance manual (RDRM33170). This concession applied to loans made on commercial terms that were regularly serviced from foreign income or gains. In those circumstances only the servicing payments would be taxed and not the use of the underlying collateral.

HMRC is seeing large numbers of arrangements which are not considered to be commercial and not within the intended scope of the concession. For example, loans repaid from non-foreign income or gains that are not charged as a remittance, despite foreign income or gains collateral having been used in the UK.

The concessional treatment for commercial arrangements is being withdrawn and HMRC is replacing the guidance with effect from 4 August 2014. From that date money brought to or used in the UK under a loan facility secured by foreign income or gains will be treated as a taxable remittance of that amount of foreign income or gains.

If the loan is serviced or repaid from different foreign income or gains, the repayments of capital and interest will constitute remittances in the normal way.

You should notify full details to HMRC if you have used foreign income or gains as collateral for a loan and have not declared a remittance. HMRC will take no action to assess those remittances if the loan arrangements were within the terms of the concession provided:

 you give a written undertaking (which is subsequently honoured) by 31 December 2015 that the foreign income or gains security either has been, or will be, replaced by non-foreign income or gains security before 5 April 2016, or

 the loan or part of the loan that was remitted to the UK either has been, or will be, repaid before 5 April 2016.

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