HMRC change of policy on UK debt secured by foreign income and gains

HM Revenue & Customs (HMRC) have announced fundamental changes affecting all UK resident but non-UK domiciled individuals (and some trustees and other relevant persons) who were planning to (or have already used) untaxed foreign income or gains as security for loans used in the UK.

Previously HMRCs’ widely published approach was that, in commercial circumstances, such income or gains would not be treated as remitted. In an unexpected change, with no advanced warning, HMRC have withdrawn this ‘concessionary’ treatment.

From 4th August 2014 HMRC take the view that it is not possible to put in place such arrangements without remitting the income or gains used as security, resulting in a UK tax liability. Moreover with regard to existing arrangements:

• There is a requirement to notify HMRC of the arrangements in place by 31 December 2015; and
• The security must be replaced by ‘clean capital’ or the loan repaid before 5 April 2016.

If not, the funds used as security will be considered by HMRC to have been remitted.

Any individual affected by the above will need to consider the alternatives available for them. Clearly current plans should be reconsidered in light of this announcement.  We are concerned and will help to challenge this change of policy which has been introduced with no consultation period and in many cases will have retrospective effect.