Indemnity payments are not a remittance to the UK

The taxpayers who were UK-resident non-domiciled individuals sold their shares in a company (VGL) to a Luxembourg resident company (CLS). At the time another company (IRS) - indirectly owned by the taxpayers through a Jersey company - owed a subsidiary of VGL £6m. The share purchase agreement stated that the taxpayers would indemnify the buyer in respect of any debt.

Shortly after the sale it became clear that the debt could not be recovered; this triggered the indemnity clause. This was carried out in an usual way which entailed the Jersey company buying clothing goods from another company in CLS’s group and the taxpayers entering into a side letter agreeing that the payment for the clothing would reduce the debt to nil. The clothing was worth only £200 000 and was gifted to a charity. The creditor issued a credit note to IRL in respect of...