SE40302 - Meaning of "received in the United Kingdom" for the purposes of Case III of Schedule E

Sections 132(5) and 65(6) - (9) ICTA 1988

Section 132(5) provides the following definition of “received in the United Kingdom…”

“For the purposes of Case III of Schedule E, emoluments shall be treated as received in the United Kingdom if they are paid, used or enjoyed in, or in any manner or form transmitted or brought to, the United Kingdom, and subsections (6) to (9) of section 65 shall apply for the purposes of this subsection as they apply for the purposes of subsection (5) of that section.”

Paid in the United Kingdom

Emoluments are “received in the United Kingdom” if they are paid to the employee in cash in this country or if the employee’s bank account here is credited with them. Employees may arrange to have emoluments paid into offshore bank accounts to avoid this rule. Money that is transmitted from the employer’s bank in the United Kingdom to the employee’s offshore bank is not treated as received here. It has been in the banking system all of the time; the employee did not have access to it

Used or enjoyed in, or in any manner or form transmitted or brought to, the United Kingdom

Detailed instructions on how income is received in the United Kingdom are at IM1565 - IM1567. There is a special rule under which emoluments are to be treated as received in the United Kingdom. It is when “they are paid used or enjoyed in, or in any manner or form transmitted or brought to, the United Kingdom”.

If emoluments are initially received abroad but are later brought to the United Kingdom in some way, they are regarded as received in the United Kingdom in the later year.

Loan arrangements

The special rule is wide enough to cover most ways of bringing money into the country. For example, in Harmel v Wright 49TC149 an employee received emoluments abroad and used them to buy shares in a company, which lent the money to a second company, which lent the money to the employee in London. It was held that the money had been received in the United Kingdom.

Assets

If an employee receives emoluments abroad but then uses them to purchase assets such as a car or a painting and then brings the assets into the United Kingdom the cost of the assets is regarded as an amount assessable under Case III.

Investments abroad

The treatment of investments made abroad depends on the particular facts. In general, the investment of money abroad by an employee resident here should not be regarded as receipt in the United Kingdom. However, if the investment is subsequently sold in this country, or sold abroad and the proceeds brought into the United Kingdom, the amount originally invested should then be regarded as received here.

Payment of a debt

If the employee is both Resident and Ordinarily Resident, emoluments arising outside the United Kingdom which are applied to the payment of debts may in certain circumstances be regarded as received in the United Kingdom. Instructions on this are at IM1563.

If there are problems in measuring the amount of the emoluments received in the United Kingdom or identifying the source of cash received here see IM1567 - IM1568.