Section 857: Partners to whom the remittance basis may apply
3210.This section gives a special rule for the treatment of the profits of a firm that is managed and controlled outside the United Kingdom. It is based on section 112(1A) of ICTA. The source legislation charges the remittance basis partner’s share of the profits of such a firm under Schedule D Case V.
3211.In most cases, the charge under Case V rather than Case I has no practical effect on the partner’s income tax liability. But, if the profits of the firm arise from the carrying on of a trade wholly or partly outside the United Kingdom, an individual who is assessed on the basis of the amount of income received in the United Kingdom (the “remittance basis”) is charged only to the extent that the overseas profits are received in the United Kingdom.
3212.This result is achieved by two rules in section 112(1A) of ICTA which require:
computation of the firm’s profit as if the trade were carried on by an individual not resident in the United Kingdom; and
treatment of any profits arising outside the United Kingdom as arising from a “possession out of the United Kingdom”.
3213.Subsection (2) of the section reproduces the first ICTA rule. The assumption in ICTA that the trade is carried on by a non-resident individual means that the computation of the firm’s profits excludes any profits that arise outside the United Kingdom. This section does not require that assumption. Instead, this rule is directed specifically at the profits arising in the United Kingdom to produce the same result. The determination of the firm’s profits in accordance with section 849 will involve subsection (2) of that section (because the partner is resident in the United Kingdom – see subsection (1)(c) of this section).
3214.Subsection (3) of the section reproduces the second ICTA rule. The assumption that the profits arising outside the United Kingdom arise from a “possession out of the United Kingdom” means that the partner’s share of those profits may be assessed on the remittance basis. This section treats the profits as “relevant foreign income” for the purposes of this Act. So the remittance basis may apply.
3215.Section 112(1A) of ICTA applies if “any of the partners … satisfies the Board that he is not domiciled in the United Kingdom…”. The quoted words (introduced in 1995) are based on section 65(4) of ICTA as it was until 1996.
3216.As part of the introduction of Self Assessment, all such references to the Board being satisfied were intended to be removed – a person self-assessing could not know whether the Board were satisfied. So the words in section 65(4) of ICTA were changed, by section 134 of and Schedule 20 to FA 1996. The words became “any person who makes a claim to the Board stating that that he is not domiciled …”.
3217.The corresponding amendment to section 112 of ICTA was not made. It is clear that section 112(1A) of ICTA should apply to exactly the same category of person as section 65(4) of ICTA.
3218.This section applies if a partner is an individual who satisfies the conditions in section 831 of this Act. So the rule for a non-domiciled partner is expressed in the same way as the rule for non-domiciled individuals generally.
