There have been unexpected changes to HMRC guidance affecting UK resident non-doms with borrowing secured on non-UK assets which could lead to the taxable remittance of loan collateral.

Who might be affected and how?

The tax position for UK resident non-UK domiciled individuals who use borrowings in the UK which have foreign income and/or gains (FIG) as collateral has been subject to change over the years. HMRC have now amended their guidance in the manual on this topic again, with potentially significant implications for taxpayers.

The HMRC guidance manual sets out their technical view on a variety of topics. The following looks to be ‘new’ concerning remittances in respect of loans which have FIG as collateral:

  • where the full amount of a loan secured on collateral that comprises FIG is brought to the UK, the full amount of the collateral is now remitted, even where this exceeds the amount of the loan – previously HMRC’s view had been that the amount remitted was capped at the amount of the monies brought to the UK. This appears disproportionate as, based on this new view, borrowing £100 in the UK with FIG collateral of £1 million could result in a remittance of £1 million. The situation is different if the full value of the loan is not remitted to the UK as, in this case, the legislation confirms that the remittance is limited to the value of the borrowings remitted or the amount of the FIG if lower; and

  • there are a number of new examples where HMRC have attempted to explain how they define when FIG has been used in the UK in respect of a relevant debt. In order to be a remittance of FIG collateral, it needs to be used in the UK in respect of a relevant debt. The new HMRC guidance outlines some examples of HMRC’s view on what constitutes use in the UK which have potential for wide application.

What action should be taken?

We are aware that the professional bodies are seeking to speak to HMRC urgently about their new guidance. Where individuals already have a loan secured on FIG collateral in place, they should await further updates.

Individuals who are about to enter into a new loan to be used in the UK in respect of which security is to be given over any FIG need to be aware of how HMRC’s new guidance may affect them.