Remittance basis ― mixed fund cleansing (April 2017 to April 2019)

By Tolley
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The following Personal Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Remittance basis ― mixed fund cleansing (April 2017 to April 2019)
  • Introduction
  • What is a mixed fund?
  • Qualifying individuals
  • Qualifying mixed funds
  • How to determine the underlying composition of the mixed fund
  • How to split the mixed fund
  • Deadline for splitting the mixed funds

Introduction

The concept of deemed domicile was introduced for income tax and capital gains tax (CGT) from 2017/18 onwards. As part of these provisions, non-domiciliaries:

  • caught by the deemed domicile 15-year rule in 2017/18 can rebase their foreign chargeable assets for CGT purposes as at 5 April 2017, see the Deemed domicile ― rebasing for capital gains tax (2017/18 onwards) guidance note
  • have a one-off opportunity to clean up existing mixed funds

For the details of the deemed domicile rules, see the Deemed domicile for income tax and capital gains tax (2017/18 onwards) guidance note.

Once a person becomes deemed domiciled for income tax and CGT, he is taxed on the arising basis. Due to the way the mixed fund rules work, non-domiciliaries approaching the date on which they become deemed domicile would find it expensive to reorganise their affairs. The Government acknowledged these consequences, stating:

“...an individual with a mixed fund will find it difficult to bring any money from the fund into the UK without paying tax at their top rate of tax when they do so. For some, this will be a punitive outcome, as the fund will be comprised of a mix of both foreign income which would be taxable at the highest rate of tax as well as money that would be taxable at a lower rate; for example, foreign gains which would be taxed at a top rate of 28% or clean capital, which would not be taxable at all even when remitted.”

Second consultation document  (Aug 2016), section 3.15

Therefore, there is a one-off opportunity for non-domiciliaries with mixed funds to separate them into their constituent parts. The individual has until 5 April 2019 to complete this ‘clean-up’ of his

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