With effect from 4 August 2014, HMRC has withdrawn the concessional treatment contained in its Residence, domicile & remittance basis Manual in respect of commercial loans, under which only servicing payments are taxed as remittances and not the underlying collateral. HMRC said that it made the change becuase it had been seen large numbers of arrangements which are not considered to be commercial and not within the intended scope of the concession.
From 4 August, 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. HMRC will not seek additional tax on existing arrangements, provided that an undertaking to replace the collateral with non-foreign income or gain by 5 April 2016 is given by 31 December 2015 or the loan is repaid by 5 April 2016.
The CIOT has expressed concern that the change in treatment of loans secured by non-doms using foreign income and gains will lead to disputes over the true interpretation of the law.
CIOT spokesperson John Barnett said: 'Non-doms living in the UK are only taxed on their non-UK income to the extent that they bring it (remit it) into the UK. This change relates to a situation where a non-dom takes out a loan - in the UK or elsewhere - which they use in the UK, for example to buy a property. If that loan were repaid using foreign income or gains the law has always recognised that repayment as an indirect remittance.
“What is less clear is the situation where the offshore income or gains are used as collateral for the loan. In most situations the collateral is just a safety net and the loan will be fully repaid using other means. HMRC previously took a view that this should be treated as a remittance only in obvious avoidance cases. The withdrawal of this treatment could mean that there is a remittance, even if the arrangement was always that the loan would be repaid using monies already in the UK.
'This will cause significant practical difficulties for banks and their customers and generates significant uncertainty for them.'
With effect from 4 August 2014, HMRC has withdrawn the concessional treatment contained in its Residence, domicile & remittance basis Manual in respect of commercial loans, under which only servicing payments are taxed as remittances and not the underlying collateral. HMRC said that it made the change becuase it had been seen large numbers of arrangements which are not considered to be commercial and not within the intended scope of the concession.
From 4 August, 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. HMRC will not seek additional tax on existing arrangements, provided that an undertaking to replace the collateral with non-foreign income or gain by 5 April 2016 is given by 31 December 2015 or the loan is repaid by 5 April 2016.
The CIOT has expressed concern that the change in treatment of loans secured by non-doms using foreign income and gains will lead to disputes over the true interpretation of the law.
CIOT spokesperson John Barnett said: 'Non-doms living in the UK are only taxed on their non-UK income to the extent that they bring it (remit it) into the UK. This change relates to a situation where a non-dom takes out a loan - in the UK or elsewhere - which they use in the UK, for example to buy a property. If that loan were repaid using foreign income or gains the law has always recognised that repayment as an indirect remittance.
“What is less clear is the situation where the offshore income or gains are used as collateral for the loan. In most situations the collateral is just a safety net and the loan will be fully repaid using other means. HMRC previously took a view that this should be treated as a remittance only in obvious avoidance cases. The withdrawal of this treatment could mean that there is a remittance, even if the arrangement was always that the loan would be repaid using monies already in the UK.
'This will cause significant practical difficulties for banks and their customers and generates significant uncertainty for them.'
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