Key Facts
- •Two UK-resident, non-domiciled individuals (Respondents/Taxpayers) sold shares in a UK company (VGL).
- •A debt existed between a company indirectly owned by the Taxpayers (IR) and a VGL subsidiary (Visage).
- •The sale agreement included an indemnity clause obligating the Taxpayers to cover IR's debt to Visage.
- •To avoid accounting complications, a complex offshore transaction occurred involving payments between several offshore companies, ultimately releasing the Taxpayers from their indemnity obligation.
- •HMRC issued closure notices assessing liabilities of £606,480 each on the Taxpayers under the remittance basis for foreign gains (s 809L ITA 2007).
Legal Principles
Remittance basis for foreign gains (s 809L ITA 2007): Defines when foreign income or gains are considered 'remitted to the UK', triggering UK tax liability.
Income Tax Act 2007, s 809L
Condition A (s 809L(2)): Requires money or property brought to, received, or used in the UK, or a service provided in the UK, for the benefit of a relevant person.
Income Tax Act 2007, s 809L(2)
Condition B (s 809L(3)): Requires a connection between the property, service, or consideration and the foreign income or gains. Various scenarios are outlined, including the use of gains outside the UK to settle a relevant debt.
Income Tax Act 2007, s 809L(3)
'Property' in s 809L(2)(a) should not be interpreted too narrowly, considering the overall purpose of the remittance basis legislation.
Grounds of appeal 9.1, 29, 40
'Service' in s 809L(2)(b) requires a commercial activity normally provided for remuneration. The location of the service's provision is determined by where it is performed, not where the benefit is received.
Discussion [63]-[81], 53, 67, 72
A 'relevant debt' (s 809L(7)) must relate to the property or service under Condition A. The pre-existing debt cannot relate to the later service of waiving that debt.
Grounds of appeal 9.3, 48-51, 84-88
Outcomes
HMRC's appeal was dismissed.
The Upper Tribunal (UT) found that the FTT correctly concluded that Condition B of s 809L was not satisfied. The UT agreed with the FTT's finding that the offshore transactions did not constitute a remittance of gains to the UK. The UT disagreed with the FTT's finding regarding a service being provided in the UK but found that this didn't change the final outcome.