A change in the treatment of loans taken out by ‘non-doms’

HMRC has announced an important change in the treatment of loans used in the UK by ‘non-doms’ (individuals who are resident but not domiciled in the UK, and who are taxed on the ‘remittance basis’).

The background

Previously, HMRC has issued guidance that where foreign income or gains are used as security for a loan which is brought to the UK (or is obtained here), they would not treat the security as being remitted to the UK but would instead look to the funds used to service the debt, being both interest and principal repayments. If clean capital funds were used to service the loan, then there would be no remittance. If previously untaxed foreign income or gains were used to service the loan, then these would be treated as remittances.

This treatment was stated to apply where the loan was on commercial terms with regular payments being made. HMRC had previously indicated that it was concerned about loans where the interest was rolled up and not actually paid.

HMRC has now withdrawn their previous statements in relation to this practice, and referred to them as 'concessionary'.

HMRC’s revised view

HMRC has changed its approach with effect from 4 August 2014. From that date funds raised in, or brought to, the UK under a loan facility secured against funds representing foreign income and gains will be treated as remittances of the income or gains secured. If interest payments or loan repayments are subsequently made from different foreign income or gains this will result in a further remittance and, effectively, a double charge.

Existing loans

HMRC has indicated that where non-doms have used foreign income or gains as collateral for such a loan before 4 August 2014 and have not declared a remittance they should notify full details to HMRC. These arrangements will not be regarded as giving rise to a tax liability provided they are within the terms of HMRC’s previous practice and by 31 December 2015 the taxpayer gives a written undertaking (which is subsequently honoured) that:

• the existing security either has been or will be replaced before 5 April 2016 by security that does not represent foreign income or gains; or
• the loan (or part of the loan) that was remitted to the UK either has been repaid or will be repaid before 5 April 2016.


This is yet another example of HMRC withdrawing guidance with retrospective effect on which taxpayers have relied. If you have taken a loan secured by untaxed foreign income or gains, action will be required to avoid a taxable remittance arising. Please contact your usual advisor at Moore Stephens who will be pleased to assist.


Private client tax team

Related links

Private client tax