On 4 August 2014, HMRC announced a change to its treatment for remittance basis purposes of foreign loans taken out by UK resident and non-domiciled individuals (UK RNDs). The change has retroactive effect on existing loans and applies in relation to loans secured on foreign income or gains the proceeds of which have then been brought into the UK.


Previously, there was uncertainty regarding the treatment of such loans structured in this manner under the complex remittance basis rules introduced in 2008 (ITA 2007). The concern was that where a UK RND borrowed funds secured on unremitted foreign income or gains that this could result in two remittances. The first potential remittance would be the actual loan transferred into the UK (secured on foreign income or gains) whilst the second remittance would be deemed to occur if interest payments on the loan were made offshore using foreign income or gains.

HMRC confirmed its treatment of such loan structuring in a statement released in August 2009 and this was subsequently adopted into HMRC's Residence, Domicile and Remittance Basis Manual. This guidance confirmed HMRC's interpretation of the remittance basis rules to be that where a UK RND borrowed funds on a commercial basis and used foreign income or gains as security that HMRC would not treat the loan as a remittance of the original funds used as security. Only foreign income or gains used to repay the loan itself or to pay interest on the loan would be treated as remitted.


HMRC has announced that from 4 August 2014, it has withdrawn this ‘concession’. Any loans secured on non-UK income or gains will be considered an immediate remittance of the funds used as security. In addition, HMRC has not changed its original view that payments using foreign source income or gains in respect of interest payments will also be considered a remittance.

In relation to existing loans, HMRC's update states that:

  • UK RNDs must give a written undertaking by 31 December 2015 that any foreign income or gains used as security have been or will be replaced by non-foreign income or gains security by 5 April 2016 (and then do so); or
  • the loan or part of the loan that was remitted to the UK has been or will be repaid before 5 April 2016.

The notification to HMRC should include the amount of foreign income or gains used as collateral and the amount of the loan remitted to the UK (if not the full amount).

Clearly there are a number of questions regarding HMRC’s change of interpretation which remain unanswered. It is expected that HMRC will provide further guidance in due course. HMRC's reinterpretation of the legislation which has been presented as a withdrawal of a concession may also be open to challenge. However, restructuring existing loans without incurring a charge to tax will not necessarily be straightforward. Loans will need to be repaid with clean capital or secured against clean capital.

UK RND individuals or institutions with clients in this position should take advice on existing arrangements as soon as possible.