RDRM34440 - Remittance Basis: Exemptions: Business investment relief: Appropriate mitigation steps
Source: gov.uk (2025-04-07)


Overview (#Overview)

Where there is a disposal of the investment (#Where there is a disposal of the investment)

Where there is another potentially chargeable event (#Where there is another potentially chargeable event)

Overview

Where a potentially chargeable event (see RDRM34390 (https://www.gov.uk/hmrc-internal-manuals/residence-domicile-and-remittance-basis/rdrm34390)) occurs, if the former remittance basis user wishes to avoid a remittance, one of the following steps must be taken:
- the proceeds (see RDRM34450 (https://www.gov.uk/hmrc-internal-manuals/residence-domicile-and-remittance-basis/rdrm34450)) are taken offshore
- a relevant person reinvests the proceeds in another qualifying investment (see RDRM34330 (https://www.gov.uk/hmrc-internal-manuals/residence-domicile-and-remittance-basis/rdrm34330))
- a combination of the two
These are known as 'mitigation steps' (section 809VI ITA 2007). See RDRM34460 (https://www.gov.uk/hmrc-internal-manuals/residence-domicile-and-remittance-basis/rdrm34460) for more information about what these steps involve. This must be done within the relevant grace period - see RDRM34480 (https://www.gov.uk/hmrc-internal-manuals/residence-domicile-and-remittance-basis/rdrm34480) (section 809VI(1))

From 6 April 2025 foreign income or gains that have been used to make qualifying investments are eligible to be designated under the temporary repatriation facility (TRF) (see RDRM71000 (https://www.gov.uk/hmrc-internal-manuals/residence-domicile-and-remittance-basis/rdrm71000)). It is not necessary to take a mitigation step for amounts of pre-6 April 2025 foreign income and gains that have been designated under the TRF – see RDRM74740 (https://www.gov.uk/hmrc-internal-manuals/residence-domicile-and-remittance-basis/rdrm74740) for guidance and an example.

From 6 April 2028 it will no longer be possible to claim BIR and make qualifying investments. This means that where a potentially chargeable event occurs, it will not be possible to reinvest disposal proceeds in another qualifying investment. So, the only mitigation step possible on or after 6 April 2028 is to take the proceeds offshore. This is the case even if the potentially chargeable event occurred before 6 April 2028 and the relevant grace period extends beyond this date.

Example 1

On 6 April 2023 Taika, a former remittance basis user, invested £750,000 of his foreign income from 2022-23 into a UK company by way of a loan and claimed BIR on the investment.

On 1 March 2028 Taika receives a partial repayment of the loan to the value of £300,000, which is a part disposal of his investment. To note, he has not designated any of the invested foreign income under the TRF. Taika will need to take a mitigation step within 45 days in order to prevent a taxable remittance. However, if he wants to re-invest the £300,000, he must do so before 6 April 2028, even though the grace period extends beyond that date. If Taika wants to take the funds offshore, he has the full 45 days to do so.

Taika may, as an alternative to taking a mitigation step, want to designate some or all of his invested pre-6 April 2025 foreign income under the TRF – see RDRM74710 (https://www.gov.uk/hmrc-internal-manuals/residence-domicile-and-remittance-basis/rdrm74710).

Where there is a disposal of the investment

In the case of full or part disposals, the whole of the disposal proceeds must be taken offshore (or reinvested), up to the amount originally invested. Where a partial disposal is made, ‘amount X’ must be calculated to determine how much of the disposal proceeds should be taken offshore or reinvested (section 809VI(1) to (4)).

Amount X is calculated as:
- the sum originally invested, less
- treated as remitted to the UK
- sent offshore or invested in another qualifying investment
- used to make a tax deposit on a previous part disposal (only up until 22 November 2017)
Up until 22 November 2017 the investor could have used some of the dissposal proceeds to make a tax deposit (see RDRM 34500). From 23 November 2017 the certificate of tax deposit scheme closed, this means that from that date Amount X is calculated as follows:
- the sum originally invested, less
- treated as remitted to the UK
- sent offshore or invested in another qualifying investment
If the disposal proceeds exceed amount X, only an amount equal to X has to be taken offshore or reinvested.

Example 2

Luther has made a qualifying investment of £1 million in Nelka Fashions Limited. The company flourishes, and after several years, Luther decides to dispose of half of his holding. The disposal proceeds are £1,200,000.

There have been no prior potentially chargeable events so amount X is £1 million (the amount originally invested). This is less than the disposal proceeds of £1,200,000 so Luther is only required to take £1 million offshore in order to take the appropriate mitigation steps.

There is also a capital gain of £700,000 (proceeds £1,200,000 less cost of £500,000) that Luther will report on his Self Assessment tax return for the year of disposal.

Example 3

Rory brings £1 million of his foreign income to the UK and invests in an eligible trading company for which he acquires 1,000 newly issued shares.

Twelve months later Rory sells 250 shares for £325,000. The acquisition cost of these shares is £250,000 so there is a UK capital gain of £75,000. As amount X is £1 million, Rory must take the entire £325,000 offshore or reinvest it in an eligible company if he is to avoid a taxable remittance of the £250,000 used to buy the shares. Rory accordingly takes £325,000 offshore.

In the following tax year Rory sells a further 250 shares for £450,000 which gives rise to a UK capital gain of £200,000. Amount X is now £675,000 - that is the original investment of £1 million less the amount of £325,000 previously taken offshore. Rory must again take the entire proceeds of £450,000 offshore or reinvest in an eligible company to avoid a taxable remittance of £250,000. Rory takes £450,000 offshore.

Five years later Rory sells his remaining 500 shares for £2,500,000, making a UK capital gain of £2 million. At this point Rory has taken offshore £775,000 of his original £1 million qualifying investment, amount X is now £225,000. Rory must therefore take a further £225,000 offshore or reinvest it if he is to avoid a taxable remittance of £500,000. The remaining £2,275,000 can be retained in the UK.

Where there is another potentially chargeable event

If the potentially chargeable event is something other than a disposal, that is, where:
- the target company ceases to qualify as an eligible company
- the extraction of value rule is breached
- the 5-year start-up rule is breached (previously 2 years before 6 April 2017)
the investor must dispose of their entire holding, or as much of it as they still hold, within the relevant grace period (see RDRM34480 (https://www.gov.uk/hmrc-internal-manuals/residence-domicile-and-remittance-basis/rdrm34480)) and then take the mitigation steps outlined above if the full amount of the foreign income or gains that were originally invested are not to be treated as remitted to the UK.

If only part of the holding is disposed of rather than the entire holding, the full amount of the foreign income or gains originally invested will be treated as remitted to the UK and not just the portion left invested in the company (section 809VI(2)).

If the appropriate mitigation steps are taken for the entire holding or as much of it as the investor still holds, the foreign income or gains used to make a qualifying investment will continue to be treated as not remitted to the UK.