RDRM35050 - Remittance Basis: Amounts remitted: Quantification: Condition B - Collateral in respect of relevant debt

When foreign income and gains are used as collateral for a relevant debt they are used ‘in respect of’ the relevant debt, so there may be a taxable remittance at this point. (refer to RDRM33170 Condition B - Collateral in respect of relevant debt).

Example 1

Freda, a remittance basis user takes out an interest-free loan for £100,000; with allegedly no requirement for repayment until an indeterminate future date. She uses the loan to purchase a plot of land in the UK, so the loan is a relevant debt.

Freda offers as collateral for the loan a French painting, currently in her Parisian apartment. She purchased this painting in an earlier tax year in which she was also a UK resident remittance basis user, using £160,000 of her untaxed relevant foreign income from that year. The painting is still worth £160,000.

Freda has used her foreign income as collateral, in respect of a relevant debt. The amount so used is the untaxed relevant foreign income that was used to acquire the painting - £160,000 in this case.

Example 2

Jack, a remittance basis user takes out a loan with a Jersey bank. He uses an overseas bank account as security for the loan. The charge is over all the funds held within the overseas account from time to time. Jack uses the loan to acquire a cottage in the UK and the loan is a relevant debt.

After the loan is used to acquire the cottage, foreign income of £1,000 is credited to the overseas account. The £1,000 foreign income has been remitted to the UK because the foreign income forms part of the security for the loan and it has been used in respect of a relevant debt.

Example 3

As per example 2, but Jack was not resident in the UK when the loan was taken out and the cottage acquired. Jack becomes UK resident on 15 May 2020 and £1,000 foreign income is credited to the overseas account on 24 July 2020. The £1,000 foreign income has been remitted to the UK because the loan is a relevant debt, the £1,000 foreign income forms part of the security for the loan and it has been used in respect of the relevant debt.

Example 4

Amanda, a remittance basis user takes out a loan with a Jersey bank. She uses a Jersey bank account containing £100,000 foreign income as security for the loan (Account A) and she uses another overseas bank account containing £100,000 foreign income as secondary security for the loan (Account B). The amount of foreign income that has been used in respect of the relevant debt, and remitted to the UK, is £200,000 (£100,000 foreign income in Account A and £100,000 foreign income in Account B). The £100,000 foreign income in Account B has been used in respect of the relevant debt because it forms part of the security for the loan.