IFM41010 - Remittance basis: overview

FA22/SCH2/PARA46

Finance Act 2022 introduced a new regime for companies that meet certain conditions (IFM40200+) and decide to become qualifying asset holding companies (QAHCs).

The new regime allows certain amounts paid to qualifying remittance basis users by a QAHC to be treated as non-UK source, reflecting the underlying mix of UK and overseas income and gains of the QAHC.

Under the existing rules, any distributions from a UK company to a UK resident individual are subject to UK income tax irrespective of the location of assets or activities that gave rise to the income or capital profits being distributed. If a UK company has only foreign assets or investments, any distributions made by the UK company will be UK source due to the company being resident in the UK.

FA22/SCH2/PARA46 has the effect of looking through a QAHC to the underlying investments and treating amounts distributed by the QAHC as foreign source, where they would be foreign source but for the use of a QAHC. This means that distributions from the QAHC that relate to the QAHC’s underlying foreign assets is taxed on the remittance basis if a claim to the remittance basis has been made for that tax year.

The modified remittance basis treatment only applies to investment managers who are taxable on the remittance basis and provide investment management services in connection with investment arrangements involving the QAHC).

The disguised investment management fees (DIMF) (IFM36000) or carried interest provisions (IFM37000) may apply to income or gains arising to an individual who performs investment management services. Care should therefore be taken to understand whether these provisions apply so that the correct amount of tax is paid.