Tribunal Ruling Clarifies Remittance Basis Taxation in UK

A non-dom businessman fell foul of the complex remittance basis rules. However, errors by HMRC rendered their discovery assessment invalid and saved the taxpayer a sizeable proportion of the tax.

In Afzal Alimahomed vs HMRC [2024] UKFTT (TC) 432, it was not in dispute that the transactions in question related to foreign income and gains. Therefore, the issue of whether income had been remitted was central to Alimahomed’s dispute with HMRC.

Alimahomed had transferred sums from an Isle of Man bank account to his son, a university student in the UK at the time. He made further bank transfers directly to his son’s university and landlord in respect of his son’s tuition and accommodation expenses. He argued that Condition A of section 809L Income Tax Act 2007 was not satisfied because he had not brought money into the UK, for two reasons.

First, a bank transfer is not legally a transfer of money. Instead, there is a debit against Alimahomed’s account and a corresponding credit in the recipient’s account. From a legal perspective, nothing had been transferred. Secondly, by initiating a bank transfer, Alimahomed had not brought money to the UK but had simply sent it to the UK, which fell outside the statutory definition.

Given these submissions would exclude all bank transfers from being taxable on the remittance basis, it is unsurprising that the first tier tribunal (FTT) disagreed. It held that bringing money to the UK includes executing the transfer or transmission of money by electronic bank transfer.

Alimahomed paid his son’s university and accommodation expenses, and purchased various items of jewellery, using a Dubai credit card. The balance of that card was paid from an account that contained overseas income and capital gains.

Under section 809L, the payment of the balance is only taxable as a remittance if it is a “relevant debt”, meaning that the debt relates to property received in the UK or services provided in the UK to or for the benefit of Alimahomed.

The taxpayer argued that any enjoyment of the services or property in the UK was by other people and therefore the credit card balance was not a relevant debt. Again, the FTT rejected his arguments, although its reasoning appears to contain a significant omission.

The FTT held that the use of a credit card to make purchases of any property in the UK creates a relevant debt, which is sufficient to dispose of the various gifts. With respect to the services, the FTT’s reasoning is thin. It concluded that, by paying for them, Alimahomed must have created a relevant debt. It does not address the requirement in section 809L that the services must be provided to or for the benefit of Alimahomed or explain how this requirement is satisfied.

Finally, Alimahomed attempted to argue that the jewellery he had purchased for himself, and his wife was exempt property under section 809X ITA 2007 because they were items for personal use. The FTT held that the exemption had no application where it is the satisfaction of the credit card debt which amounted to a remittance.

Alimahomed argued that the discovery assessment in relation to the 2015/16 tax year was invalid because HMRC had failed to prove their case. This was irrelevant in respect of the 2016/17 tax year, which was dealt with by issuing a closure notice.

HMRC is required to prove that a discovery assessment was validly issued in accordance with section 29 TMA 1970. In their statement of case, HMRC alleged that the discovery assessment was valid because the loss of tax had been brought about deliberately by Alimahomed.

In the hearing, HMRC abandoned that argument but made no formal application to amend its statement of case. The FTT held that HMRC could not depart from the case it had originally set out and had failed to demonstrate the validity of the discovery assessment. Therefore, the appeal was partially allowed in respect of the discovery assessment, worth just under £90,000.

Non-doms will need to be careful to avoid inadvertent remittances creating accidental tax charges.