Remittance basis: grandfathering mitigates HMRC’s loan collateral changes

HMRC have announced that the ending of “concessional” treatment of unremitted funds used as loan collateral will now only apply to loans brought into or used in the UK on or after 4 August 2014.

HMRC’s position is that any use of unremitted foreign income/gains as collateral for a loan brought into or used in the UK constitutes a remittance but until 4 August 2014 they were prepared concessionally to treat collateralised loans for genuine commercial purposes as not constituting remittances. The announcement made on 4 August 2014 included a period of grace for pre-existing commercial loans that were repaid or restructured before 6 April 2016 so as not to use unremitted foreign income/gains as security, not to be treated as remittances of the foreign income/gains concerned.

HMRC proposed to treat commercial loans that were not restructured before 6 April 2016 as remittances of the foreign income/gains made when the loans were first used in or brought into the UK, not just from their change of practice. (Loans secured on income/gains realised before 6 April 2008, i.e. before the present remittance basis rules came into force, are unaffected by this HMRC practice.)

The original announcement on 4 August 2014 would have meant that non-doms using unremitted foreign income or gains as collateral for loans enjoyed in the UK had to repay or reorganise all such loans by 6 April 2016 or be taxed as if they had remitted the foreign income/gains when the loans were first brought into or used in the UK.

For non-doms who could not repay or reorganise their loans that could have meant additional tax charges going back as far as 2008/09. Fortunately a degree of common sense has prevailed and arrangements already in existence on 4 August 2014 will now be unaffected by the change.

Share