The tax legislation contains a number of rules to ensure that offshore investment
income is properly taxed in the UK. These operate by treating money as remitted
into the UK in a number of circumstances where there is economic value being
received in the UK. If money is applied overseas in any of the following
circumstances, it will be treated as though it were received in the UK:
- Repaying the principal or interest on any loan made in the UK;
- Repaying the principal (but not interest) on any loan made outside the
UK where the proceeds of the loan are brought into the UK;
- Repaying the principal on any loan made to satisfy any debt in 1 or 2
above.
It is therefore possible to borrow money overseas, which is brought into the
UK. As long as the loan principal is repaid either out of capital or using income
already taxable in the UK, the interest can be safely serviced out of offshore
income without triggering a tax charge.
If assets are purchased offshore out of income and subsequently brought into
the UK, this is not treated as a remittance of the income unless the assets are
then sold.
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