In August 2014, HMRC gave notice of the withdrawal of concessional remittance basis treatment of foreign income and gains used as collateral for certain loans brought into or used in the UK.
At that time, HMRC requested anyone using the remittance basis, who used foreign income and gains as collateral for a loan brought into or used in the UK before that date, notify them where they had not declared a remittance.
Foreign income and gains collateral would then either be repaid or replaced by non-foreign income and gains collateral before 5 April 2016.
Difficult or impossible
In October 2015, HMRC quietly announced that discussions with representative bodies brought to light that for some loan arrangements it would be difficult or impossible to unwind or replace the foreign income or gains used as collateral.
“What they are saying is that if you borrowed using foreign income and gains as collateral – we view that as a taxable event. But we’re not going to collect tax on it.”
They have therefore withdrawn the policy.
The quiet U-turn stands in stark contrast to chancellor George Osborne’s firm vow in his Autumn Statement on Wednesday to tackle tax avoidance and tax evasion.
Not wholly logical
“HMRC’s interpretation isn’t wholly logical,” said Mark Davies, director of Mark Davies & Associates. “What they are saying is that if you borrowed using foreign income and gains as collateral – we view that as a taxable event. But we’re not going to collect tax on it.”
Even though he view the move by HRMC as “embarrassing”, Davies believes that it is “a good thing”.
The changes made in August 2014 resulted in increased risk that people could be double or, under some circumstances, even triple taxed.
Right first time
“HMRC’s original interpretation was right. It was logical and made sense. If you borrow using foreign income or gains as collateral, it’s not taxable unless you intend to use that income or gains to repay the loan. If you do use it, it is taxable.”
For Davies, one of the driving forces behind the change was the realisation by HMRC that if they were to be challenged in the courts they might lose.
“As a result, we’re seeing this rowing backwards.”