Upper Tribunal upholds restrictive approach to the use of Business Investment Relief

This article provides a summary of the Upper Tribunal judgement on Benoit d’Angelin v HMRC [2025] UKUT 00212 (TCC), and briefly discusses the practical implications deriving from the decision to wider circumstances involving Business Investment Relief.

Introduction

One drawback of the remittance basis was that by taxing foreign income and gains brought into the UK, the regime effectively deterred UK resident non-domiciled persons from remitting their foreign income and gains. To mitigate this undesired effect, Business Investment Relief (“BIR”) was introduced. The relief allows foreign income and gains to be remitted to the UK tax free, provided they are invested in qualifying UK companies.

In Benoit d’Angelin v the Commissioners for His Majesty’s Revenue and Customs [2025] UKUT 00212 (TCC), the Upper Tribunal ruled that the BIR company lending to the investor by way of a director’s loan account (DLA) breached the “extraction of value” rule. This breach resulted in the loss of the relief.

Background of the case

The Upper Tribunal’s judgement was on appeal by Mr d’Angelin against the First-Tier Tribunal’s decision dismissing his claims that a DLA provided by a UK company did not breach the extraction of value rule, and thus there were no grounds for the loss of BIR.

In December 2016, Mr d’Angelin remitted £1.5 million of foreign income to the UK and subsequently invested the amount in a UK limited company. The company was controlled by him, and he was appointed sole director. Its main activity was described as “advisory boutique offering executive bespoke personal advice in high-end transaction execution services to global corporate clients at CEO and board of directors level as well as family holdings and fast-growing private companies”.

Mr d’Angelin claimed BIR, and the invested amount was treated as not remitted to the UK for tax purposes, thus making the remittance tax-free. At all relevant times, Mr d’Angelin was a UK resident but non-domiciled.

Following the investment, the UK company lent money to Mr D’Angelin under his DLA. He used part of the loan to pay personal expenses. The balance on the account fluctuated over time, ranging between £37,825 and £71,515 at various points between 2017 and 2018.

The loan account was interest-free, unsecured and repayable on demand. It was not supported by any formal agreement. The loan account was never fully repaid, and no repayment pattern had been identified.

The judgement focused on whether the provision of the loans by the company to Mr d’Angelin breached the extraction of value rule. If a breach occurred, it would constitute a “potentially chargeable event”, resulting in a loss of the BIR, and the amount invested would be subject to tax under the remittance basis regime.

The Revenue argued that the loans provided through the DLA constituted a breach of the extraction of value rule, due to the following reason:

• The values were received for the benefit of Mr d’Angelin, who was the investor;
• The values were received from the invested company; and
• The values were not a disposal that would be a potentially chargeable event.

Additionally, the Revenue contended that the extracted values did not meet either of the two statutory conditions that exempt values received from breaching the extraction of value rule.

In his defence, Mr d’Angelin presented two main arguments:

1. There was no receipt of value at all. He argued that a receipt of value, as per section 809VH(2), ITA 2007, means a receipt of net value; and
2. Even if the director’s loan account constituted a receipt of value, these receipts were provided on arm’s length terms. Therefore, under section 809VH(3)(b), ITA 2007, the values received should be exempt from breaching the extraction of value rule.

What did the tribunal decide?

The issue in the appeal was whether BIR was lost. The primary question addressed in the judgement was whether a “chargeable event” had occurred following a potential breach of the extraction of value rule. This rule is one of the four statutory circumstances that can trigger a “potentially chargeable event”.

Meaning of “value”

The first topic addressed by the Tribunal related to the meaning of “value” in section 809VH(2), ITA 2007.

Mr d’Angelin argued that a receipt of value should be understood as a receipt of net value. This meant that the recipient should be better off overall following the receipt. Simply receiving something of value which does not result in the recipient becoming better off would therefore not constitute a receipt of value under the extraction of value rule.

The Appellant pointed out that the Revenue’s broader interpretation of “value” would lead to the extraction of value rule being breached, and the BIR being lost in absurd situations. This would include almost any transaction between a parent and a subsidiary company, as well as intra-group transactions in certain circumstances, ultimately defeating the purpose of the BIR. Foreign investment would be discouraged rather than incentivised, a result that Parliament could not have intended.

However, the Tribunal concluded that the term “value” for BIR purposes does not depend on the recipient being better off overall or on a net basis. The Tribunal acknowledged this interpretation could be “harsh” but did not produce absurd situations.

The Tribunal acknowledged that this interpretation would significantly limit the scope of BIR, reducing the relief to situations involving close companies operating independently. Even then, it would be subject to certain transaction restrictions. It was also noted that investments using foreign income and gains would likely not be made in group structures. The Tribunal acknowledged that such an interpretation was harsh – but harsh is not necessarily absurd.

Furthermore, the Tribunal found the legislation’s meaning of value to be unambiguous. Adding the word “net” to the term would materially change a definition that Parliament could have easily made explicit if intended.

Exception to the rule

The second topic addressed in the judgement concerned whether the provision of the director’s loan account to Mr d’Angelin met the requirements set out in section 809VH(3)(a)(b). This provision stipulates that the extraction of value rule is not breached if the value:

a) Is subject to income tax or corporate tax, and
b) Is received “in the ordinary course of business and on arm’s length terms”.

The Tribunal concluded that neither condition was satisfied.

For the first condition, only the deemed interest of the loan amount could be treated as income for tax purposes. The principal amounts loaned could not be treated as the receipt of income for income tax purposes.

That would be sufficient for the value received to fall outside the saving rule. However, the Tribunal noted that the DLA was unlikely to have been provided on arm’s length terms, referencing the reasoning given by the First-Tier Tribunal on this point.

How might this case impact other individuals who have previously claimed BIR?

Applicability of BIR

BIR was intended to incentivise investment in qualifying UK businesses using foreign income and gains. However, HMRC’s interpretation of “value”, now upheld by the Upper Tribunal, may produce the opposite effect.

This interpretation significantly limits the scenarios in which BIR can be applied without breaching the extraction of value rule.

If this interpretation of “value” is correct, we may be facing a situation where the government gives with one hand and takes with the other. While it offers a relief for UK resident non-domiciled individuals to remit their foreign income and gain tax-free, it may make the use of this relief commercially impractical in many situations. Even the most routine commercial transactions, such as a parent company lending funds to its subsidiary on arm’s length terms, may now breach the extraction of value rule, leading to a chargeable event and the loss of BIR.

Individuals who have previously claimed BIR

The Upper Tribunal’s judgement is far-reaching and may impact a number of individuals who have previously claimed BIR.

The Tribunal’s interpretation of “value” implies that numerous transactions, previously believed to comply with the extraction of value rule, may now be considered in violation of this rule. It is advisable for those individuals to re-evaluate these transactions to determine if their use of BIR is affected by the Tribunal’s restrictive interpretation of “value”.

One possible let-out here is that since 2017 the extraction of value must be “directly or indirectly attributable to the investment” before the extraction of value rule is breached. This may save some otherwise innocent intra-group transactions that have nothing to do with the BIR investment. However, this will not always save the position.

Interaction between BIR and the tax regime for individuals with international connections in effect since 6 April 2025

BIR will continue to apply to existing investments until a chargeable event is triggered. When such an event happens, the current grace periods for remitting the funds offshore without any charge will be applicable.

BIR will be phased out starting from 6 April 2028 and will no longer be available for any new investments or reinvestments using foreign income or gains. Until then, BIR can apply to any pre-6 April 2025 foreign income and gain remitted to the UK and allocated to a qualifying company, provided that the required conditions are met.

Foreign income and gains that have been invested in qualifying UK businesses, where BIR has been claimed, can be designated under the temporary repatriation facility (TRF) without the need to remove the invested funds from the company. If a chargeable event is triggered after the designation and payment of the TRF charge, no further tax will be levied. Using the TRF may be advantageous for individuals who have claimed BIR and plan to undertake a transaction that could breach the extraction of value rule. If used correctly, the individual will be subject to a single TRF charge at 12% or 15%, instead of a potential income tax charge of up to 45% if BIR is lost.

The use of the TRF may not be available for investments where a chargeable event occurred before the funds were designated.

Burges Salmon has significant experience advising individuals on questions involving BIR and the remittance basis.