The UK tax authorities, HM Revenue & Customs (‘HMRC’), unexpectedly announced a change in early August to their guidance affecting non-UK domiciled individuals who are resident in the UK.
Non-UK domiciled individuals commonly built up monies/assets outside the UK, which if brought to the UK would result in a tax charge, by virtue of having claimed the ‘remittance basis’. It became common practice for non-UK domiciled individuals to secure 3rd party bank loans against such monies/assets, and bring the proceeds of the loan to the UK, and this would not be regarded as a taxable remittance, based on HMRC’s own guidance. The loan could be used for any purpose including living expenses or to purchase UK property.
Any loan repayments or servicing of interest would typically be made from ‘clean capital’ and/or UK taxed monies so that a taxable remittance did not arise at all. This type of arrangement, correctly structured, allowed non-UK domiciled individuals access to their untaxed overseas monies where the only cost would be that of the borrowing.
HMRC changed their guidance on such arrangements from 4 August 2014 and any new loans created in this way are no longer effective. Non-UK domiciled individuals with historical loans have been given a period of grace so that a tax charge does not arise, but these arrangements will need to be notified to HMRC and action to restructure the loans will need to be completed by 5 April 2016. If the necessary actions are not completed, a tax charge could arise.
It is therefore vital that historical loans are now reviewed and relevant discussions with lenders take place. If you require advice in relation to the impact of these changes, please contact Nimesh Shah.