UT/2024/000105 - [2025] UKUT 00212 (TCC)

Chapter A1 (remittance basis) of Part 14 of the ITA 2007 provides that an individual taxpayer who is resident but not domiciled in the United Kingdom who has elected (including by paying the appropriate annual charge) to be taxable on the remittance basis will be chargeable to income tax in respect of their foreign income and gains if money or other property which is or derives from the foreign income and gains is brought to or received or used in the United Kingdom by or for the benefit of a ‘relevant person’. A relevant person is defined in section 809M(2) as:

“(a)

the individual,

(b)

the individual's husband or wife,

(c)

the individual's civil partner,

(d)

a child or grandchild of a person falling within any of paragraphs (a) to (c), if the child or grandchild has not reached the age of 18,

(e)

a close company in which a person falling within any other paragraph of this subsection is a participator or a company which is a 51% subsidiary of such a close company,

(f)

a company in which a person falling within any other paragraph of this subsection is a participator, and which would be a close company if it were resident in the United Kingdom, or a company which is a 51% subsidiary of such a company,

(g)

the trustees of a settlement of which a person falling within any other paragraph of this subsection is a beneficiary, or

(h)

a body connected with such a settlement.”

BIR is provided for in section 809VA as follows:

“809VA Money or other property used to make investments

(1)

Subsection 2 applies if –

(a)

a relevant event occurs,

(b)

but for subsection (2), income or chargeable gains of an individual would be regarded as remitted to the United Kingdom by virtue of that event, and

(c)

the individual makes a claim for relief under this section.

(2)

The income or gains are to be treated as not remitted to the United Kingdom.

(3)

A ‘relevant event’ occurs if money or other property—

(a)

is used by a relevant person to make a qualifying investment, or

(b)

is brought to or received in the United Kingdom in order to be used by a relevant person to make a qualifying investment.”

It was common ground that the sum of £1.5 million invested by Mr d’Angelin had properly attracted BIR, the only issue in this appeal being whether BIR was lost. BIR is lost in the circumstances specified in section 809VG.

It was common ground that conditions in (a) and (c) of section 809VG(1) were met in this case. The question was whether there had been a ‘potentially chargeable event’ within the meaning of the second condition.

Section 809VH defines ‘potentially chargeable event’ to include a breach of the extraction of value rule. It also defines that rule and sets out when it is breached.

“809VH Meaning of ‘potentially chargeable event’

(1)

For the purposes of section 809VG, a ‘potentially chargeable event’ occurs if—

…

(b)

the relevant person who made the investment (‘P’) disposes of all or part of the holding,

(c)

the extraction of value rule is breached, or

…

(2)

The extraction of value rule is breached if—

(a)

value (in money or money’s worth) is received by or for the benefit of P or another relevant person,

(b)

the value is received—

(i)

from an involved company, or

(ii)

from anyone else but in circumstances that are directly or indirectly attributable to the investment or to any other investment made by a relevant person in an involved company, and

(c)

the value is received other than by virtue of a disposal that is itself a potentially chargeable event.

(3)

But the extraction of value rule is not breached merely because a relevant person receives value that—

(a)

is treated for income tax or corporation tax purposes as the receipt of income or would be so treated if that person were liable to such tax, and

(b)

is paid or provided to the person in the ordinary course of business and on arm’s length terms.

(4)

Each of the following is an ‘involved company’—

(a)

the target company,

(b)

if the target company is an eligible stakeholder company, any eligible trading company in which it has made or intends to make an investment,

(c)

if the target company is an eligible holding company, any eligible trading company that is a 51% subsidiary of it, and

(d)

any company that is connected with a company within paragraph (a), (b) or (c).”

As the person who made the investment, Mr d’Angelin was ‘P’ in this case. There was no dispute that, if value had been received by him, then it had come from the Company which was, for these purposes, an ‘involved company’. It was also common ground that, if it was a receipt of value, the provision of the DLA was not received by virtue of a disposal that was a potentially chargeable event.

As the FTT pointed out at [42], the definition of ‘potentially chargeable event’ in section 809VH(2)(b) was amended by section 15(5)(c) Finance (No 2) Act 2017. For investments made on or after 6 April 2017, the extraction of value rule applied where “the value is received from any person in circumstances that are directly or indirectly attributable to the investment”. The amended rule does not apply in this case as the investment was made in December 2016.