11 November 2015

UK loan collateral rules: HMRC u-turn - pre 4 August 2014 arrangements do not need to be unwound

On 4 August 2014, HMRC announced that it had reviewed the guidance published in 2010 in HMRC's Manual RDRN33170 regarding the remittance to the UK of loans collateralised against non UK income and gains. Click here to read more

HMRC's 4 August 2014 notice requested anyone using the remittance basis who had used non UK income and gains as collateral for a loan brought into or used in the UK before that date to notify HMRC where they had not previously declared a remittance. The notice stated HMRC's intention to assess remittances for loan arrangements that had relied upon the prior guidance, if a written undertaking was not provided by 31 December 2015 that a non UK income and gains collateral would either be repaid or replaced by a non UK income and gains collateral before 5 April 2016, or the undertaking was not honoured.

Discussions with representative bodies since the announcement of 4 August 2014 have brought to light that for some loan arrangements it may be difficult or impossible or unwind or replace the non UK income or gains used as collateral.

To ensure that the transitional period does not have an unintended effect, HMRC has announced, after careful consideration, that it has decided that it will with effect from 15 October 2015, not seek to apply the change announced on 4 August 2014 to arrangements where the loan was brought into or used in the UK before 4 August 2014.

Good news then for those whose remittances took place before 4 August 2014 and who have not, so far, taken steps to put alternative arrangements in place. Bad news, however for those who have incurred costs and/or tax making alternative arrangements in order to meet the 6 April 2016 deadline.

The announcement on 15 October 2015 confirmed that the review of the guidance previously announced on 4 August 2014 stands for arrangements put in place post that date and remittances of loans to the UK on or after 4 August 2014 will be viewed as a taxable remittance to the UK if collateralised against non UK income gains.

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