.png)
.png)
CIOT warns of “extensive battles” over interpretation of law
HMRC have withdrawn the concessional treatment for commercial loan arrangements where unremitted foreign income or gain is used as collateral.
Money brought to or used in the UK under a loan facility secured by foreign income or gains will be treated from 4 August as a taxable remittance of the 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.
Revenue officials say the change was made after they saw large numbers of arrangements they did not consider to be commercial and which were not within the intended scope of the guidance.
Taxpayers are advised to notify the tax department they have used foreign income or gains as collateral for a loan and not declared a remittance. HMRC say they will take no action to assess if the arrangements were within the terms of the concession in RDRM33170, provided:
- there is a written undertaking 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.
The axing of the treatment has caused concern in the tax profession, with John Barnett of the Chartered Institute of Taxation (CIOT) saying, “The law was unclear when the current rules on non-domiciled remittances were introduced in 2008, but many people thought the use of funds as collateral for a loan did not give rise to a tax charge.
“HMRC practice followed that view, but the department is now saying it will charge tax in these circumstances – which will inevitably lead to extensive battles over the true interpretation, with people and their banks rearranging their affairs so that they do not fall foul of the new view.
“Where different pools of unremitted foreign income and gains are used to provide collateral and subsequent repayment, the Revenue suggests that both amounts should be charged to UK tax: a form of double taxation,” claimed Barnett, the CIOT’s capital gains tax and investment income sub-committee chairperson.
He added that several questions were unanswered about HMRC’s new approach. “For example, it is common for banks to have a right of set-off against all assets owned by a customer taking out a loan, so even if the primary collateral is in the UK the bank could also have offshore assets as secondary security. What would happen in this situation?”
The CIOT intends to write to the taxman, said Barnett. “It is disappointing that we have to raise concerns now, after the proposal has been announced, rather than having the opportunity to comment in advance.
“Non-doms were told in 2010 that there would be no further changes this parliament. Making changes without consultation does not enhance the UK’s reputation as a place to do business with certainty.”
