This briefing note is only intended as a general statement of the law and no action should be taken in reliance on it without specific legal advice.

Important change for UK-resident non-domiciled individuals
05 August 2014

Important change for UK-resident non-domiciled individuals

On 4 August HM Revenue and Customs announced a major change to the taxation of commercial loans taken out by UK-resident, non-domiciled individuals where the borrowed money is brought to the UK.

Historically HMRC have allowed a concession that only paying the interest or repaying the capital out of foreign income or gains have been taxed as remittances.  The underlying collateral itself is not treated as remitted to the UK when the loan is brought to the UK even if it consists of foreign income or gains.

From 4 August, money brought to or used in the UK under a commercial loan facility which is secured by foreign income or gains will be treated as a taxable remittance of the foreign income and gains to the extent of the loan. If the loan is subsequently serviced or repaid from different foreign income or gains, the repayments of capital and interest will also constitute remittances in the normal way. This effectively means that there could be taxable remittances of double the amount of loan brought to the UK.

Existing arrangements must be disclosed to HMRC if foreign income or gains have been used as collateral for a loan brought to the UK and no remittance has been declared.  Existing loan arrangements will only avoid taxation under this new regime if an undertaking is given by 31 December 2015 that the loan will be repaid before 5 April 2016, or that the foreign income or gains collateral for the loan will be replaced by non-foreign income or gains collateral by 5 April 2016. UK-resident, non-domiciled clients with commercial loans that were brought to the UK should take advice as soon as possible.

These changes are also a reminder that non-domiciled individuals thinking of a move to the UK should always seek tax advice before they become UK resident and undertake proper pre-arrival remittance planning.

For more information please contact Andrew Goldstone, Kassim Meghjee or Stephen Coleclough.