In Afzal Alimahomed v HMRC [2024] TC09178, the First Tier Tribunal (FTT) found that a taxpayer had accidentally converted 'clean capital' into mixed funds in terms of the remittance basis and then had accidentally remitted funds by using an offshore credit card in the UK by purchasing goods in the UK and paying for them from an offshore account.

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  • The appellant and his family sold the family packing business in 2006 with the proceeds deposited into a Guernsey bank account.
  • They moved to Dubai in 2007 and remained Non-UK tax resident for over five years. Being non-resident, the proceeds from Selling the business were ‘clean capital’ for remittance purposes under the Remittance Basis of taxation
  • Inadvertently some overseas income was added to the Guernsey account making it a mixed account. Money from that Guernsey account was transferred to an account in the Isle of Man (IoM), which also became a mixed fund.
    • Transfers were made from the IoM account to an account in Dubai to pay living expenses and to settle a Dubai credit card.
  • In 2009, the former business went into administration and the appellant’s family repurchased it to save jobs. The business struggled until the appellant returned to spend time (unpaid) in the UK in 2014 to assist in the recovery. He became UK tax resident during the period covered by the Discovery assessment and Closure notice.
  • He returned no income on his self-assessment tax return for 2015-16 which did include a claim to use the remittance basis. A similar return was submitted for 2016-17 and HMRC opened an enquiry in December 2018 to consider his domicile position and review his means.
  • The appellant subsequently accepted that some amounts should have been included in the tax returns under enquiry and for some earlier years. Amendments were therefore made.
  • The appellant had also made payments to the UK bank account of his son who was over 18 and studying at university in the UK.
  • HMRC issued assessments for foreign income that had been remitted to the UK and omitted from the appellant’s tax return which the taxpayer Appealed.
  • The payments in question were direct into the son’s bank account, to other UK bank accounts of other friends and family, the direct and indirect payment of some of his son’s university expenses from both the appellant’s offshore credit card and his offshore bank account, the purchase of jewellery for himself and his immediate family and for others using the offshore credit card.

The two issues to be determined related particularly to s.809L and s.809M Income Tax Act 2007 and whether there was a remittance in either case.

  1. Whether the definition of money or other property 'brought to' the UK catches bank transfers from an offshore bank account into a UK bank account.
  2. Whether a relevant person must benefit for there to be a taxable remittance.

    The FTT found:

  • HMRC did not raise a valid discovery assessment. The 2015-16 assessment was set aside in full. The matter of deliberateness was not substantiated by HMRC and it was not included in the cross-examination. In other words, HMRC did not plead their case on the basis stated.
  • Regarding the closure notice, the appellant had brought money (or other property) to the UK when he made bank transfers from his offshore account into the UK bank accounts of his son, his son’s landlord and his son’s university. By a purposive construction, ‘brought to’ included all the transactions undertaken.
  • The tribunal agreed with HMRC that by using an offshore credit card in the UK the appellant had created a ‘relevant debt’ so that settlement of the credit card balance with an offshore bank account amounted to the use of income or chargeable gains outside the UK in respect of a relevant debt. This applied to the purchase of jewellery for both himself and family members, for instance.
  • It did not matter that the appellant did not have access to the money that was transferred or did not personally benefit from the remittances. The key factor was he initiated the remittances.
  • The tribunal directed the parties to agree on the amounts remitted as there was insufficient information before the hearing to reach a conclusion.

Useful guides on this topic

Non-Domicile & the Remittance Basis: At a glance
What is Domicile? Does it have tax advantages? What is the Remittance Basis. When does it apply for Non-Domiciled individuals?

Remittances: what is a remittance for the remittance basis rules?
What is a remittance in terms of the remittance basis of taxation, with practical examples.  What are the remittance matching rules?  What is clean capital?

Remittance basis (overseas income)
What is the remittance basis? Who can claim it and when? What are the advantages of claiming the remittance basis and how much is the remittance basis charge?

SRT: Statutory Residence Test Toolkit
This is a freeview interactive tool to determine 'At a glance' whether you are UK resident or not in a tax year. A tax year in the UK runs 6 April to 5 April.

SRT: Statutory Residence Test
What is the Statutory Residence Test (SRT)? Why is it important and how does it determine a person's residency?

A company disposal? Start here...
If you are thinking of selling your company, what sort of things do you need to bear in mind? How do you know what the business is worth? What should you do with any built up cash? Are there any relief to mitigate the gains?

External links

Afzal Alimahomed v HMRC [2024] UKFTT TC09178