We have a UK resident non UK domiciled client. He is obtaining an SPV to purchase an asset that is remitted to the UK and is not eligible for BIR. They are looking to provide collateral for the loan.
We are happy that funds used to finance the loan are chargeable as a UK remittance. There are two options being considered:
- That the client personally is the guarantor of the loan (though no specific assets are required as collateral for the loan)
- That one of the client’s overseas companies is used as guarantor of the loan
We are (relatively) comfortable that if the individual was used as guarantor, there is no remittance since no collateral is offered. We are worried that, given HMRC’s updated guidance on the use of collateral for loans, the use of the client’s company as guarantor would mean that HMRC will seek to charge the income and gains accruing within the company as the client’s own money remitted to the UK. If the company is connected with the individual (i.e. it is a close company) will it be a deemed remittance of the company to the extent that the company funds are available to be used as collateral for the loan and have not been previously taxed in the UK? If so, there would be a double charge – once when the company is used and again when the loan is financed by the individual.
Also, there are two other situations we would be grateful for clarification:
- Is there a remittance where a fee is paid to arrange the loan? The fee in no way reduces the interest payable on the loan
- If the loan is repaid there is a penalty charge associated with the early repayment. Is this also a remittance?
It is clear that servicing the loan is funding a UK situs asset but would a loan fee and / or penalty be considered UK situs? We are struggling with the statutory references for the above! Any practical experience of how HMRC treat these amounts would be greatly appreciated.