The Finance Act 2012 introduced a new Business Investment Relief for non-UK domiciliaries who are resident in the UK and who are taxed on the remittance basis. So long as they comply with the conditions attached to the relief, such individuals can remit offshore income and gains specifically for the purpose of investing into qualifying companies without the remittance being chargeable to tax.
Whilst the conditions themselves are relatively straightforward, there was uncertainty in relation to the repayment of loans used to make such investments which HMRC have now clarified.
The CIOT announced on 15 August that HMRC have confirmed that when a loan is taken out to undertake a qualifying investment after 6 April 2012 and that loan is subsequently repaid by using overseas income or gains, the new relief will apply and the repayment of the loan will not be treated as a remittance. However, all the other conditions of the relief must still be satisfied.
Where a loan is repaid using offshore income and gains, the appropriate relief must be claimed in the year of repayment not the year of investment. This is because the year of repayment would otherwise be the point at which the remittance would be taxed.