Guidance

Cleansing mixed funds

Find out about changes to the cleansing mixed funds rules from 6 April 2017.

• From: HM Revenue & Customs
• Published: 31 January 2018
• Last updated: 9 March 2018 — See all updates

A mixed fund is an overseas fund of money, which contains:

• more than one type of income, gains and capital, or
• income, gains or capital from more than one tax year

You can cleanse mixed funds by transferring money from one offshore account to another if you:

• are non-UK domiciled
• can identify the make-up of your mixed funds
• have been taxed on the remittance basis in any year from 6 April 2008 to 5 April 2017
• meet the conditions in section 809B of the Income Tax Act 2007
• meet the conditions in section 809D of the Income Tax Act 2007 (your unremitted foreign income and gains are less than £2,000)
• meet the conditions in section 809E of the Income Tax Act 2007 (without making a claim, other cases)

You cannot cleanse mixed funds if you were born in the UK with a UK domicile of origin.

Cleansing conditions from April 2017

From 6 April 2017 to cleanse your mixed fund accounts you must:

• nominate the transfer
• make the transfer between 6 April 2017 and 5 April 2019
• only cleanse money
• transfer from one overseas account to another
• specify the amount for each category
• not have nominated a transfer from account A to account B before
• be a qualifying individual at the time of transfer
• make sure the transfer is for income, gains and capital, can be the whole or part of what is in the account and does not exceed the amounts in the account immediately before the transfer
• be able to identify the source of the funds

If you cannot identify all the sources of the amounts in each of your mixed fund accounts, you’ll only be able to apply the cleansing provisions to the amounts you can identify.

You do not have to cleanse all overseas mixed fund accounts at the same time, as long as each account is cleansed within the 2 year window, ending 5 April 2019.

You also do not need to completely empty the original mixed fund account, but once a nominated transfer from an account has happened it cannot be nominated again into that same account.

Nominations

You must nominate all transfers of income, gains and capital from the mixed fund you want to cleanse and:

• keep records of all nominations
• make the nomination between 6 April 2017 to 5 April 2019

Any nominations made outside this 2 year window will not be valid for cleansing purposes.

The normal mixed fund rules still apply (sections 809Q and 809R Income Tax Act 2007), to transfers in or out of an uncleansed or partially cleansed mixed fund, if these transfers are not nominated for the purposes of the cleansing provisions.

If nominated transfers exceed the amount of that kind of income held in the mixed fund account immediately before the transfer then the normal mixed fund rules will apply. Such a nomination would be invalid and would have the potential to affect all subsequent nominations possibly invalidating them too.

If you cannot identify the make-up of the transfer, because you do not have enough evidence of what is in the other account, then the transfer will be treated as income.

Examples 1 and 2 show mixed fund nominations.

Example 7 shows multiple account nominations.

Joint Accounts

Joint mixed fund accounts can be cleansed even if only one person qualifies.

Each qualifying person can cleanse their share of the joint account by identifying:

• the funds which are theirs
• what those funds are, income, capital or chargeable gains

Before 6 April 2008

The statutory rules for mixed funds did not apply before 6 April 2008.

You can cleanse an account that contains funds from before 2008, after 6 April 2008 or both, if you meet the cleansing and qualifying conditions.

Transfers made from a mixed fund before 6 April 2008

Step 1

Calculate the total amounts of income and chargeable gains in the mixed fund immediately before the transfer took place.

Step 2

Work out the proportion of income and gains contained within the account.

If the amount transferred is less than the total amount of income and gains, treat that transfer as comprising of the proportions of income and gains contained within the account.

If the amount transferred exceeds the total amount of income and gains you do not need to proceed further than step 1 – the initial identification of the total amounts of income and gains contained within the account before the transfer took place.

Examples 3 and 4 show transfers from mixed fund account before 6 April 2008.

Transfer made into a mixed fund before 6 April 2008

Step 1

Calculate the total amount of income and chargeable gains in the other overseas account immediately before the transfer took place.

Step 2

Work out what proportion of the total income and chargeable gains is income and chargeable gains.

The transfer to the mixed fund account will consist of income and chargeable gains in the proportions as worked out at step 2.

Examples 5 and 6 show transfers into mixed fund account before 6 April 2008.

Examples

Example 1

Natasha has a mixed fund containing:

• 2012 to 2013 foreign income £1 million
• 2013 to 2014 foreign income £2.3 million
• 2014 to 2015 foreign income £1.5 million

Total £4.8 million

• 2010 to 2011 foreign gain £500,000
• 2011 to 2012 foreign gain £750,000
• 2012 to 2013 foreign gain £2.5 million
• 2013 to 2014 foreign gain £1.5 million

Total £5.25 million

On 10 January 2018 Natasha nominates and transfers to an already existing account (containing only foreign gains) £4.5 million. She keeps sufficient evidence which shows the transfer consisted of:

• £1.5 million 2013 to 2014 foreign gain
• £2.5 million 2012 to 2013 foreign gain
• £500,000 2010 to 2011 foreign gain

The £750,000 foreign gain from 2011 to 2012 remains in the original mixed fund for the time being.

Example 2

Flavia has a mixed fund account which contains the following funds immediately before she nominates transfers under the cleansing provisions:

• 2014 to 2015 overseas capital gain £200,000
• 2014 to 2015 clean capital £150,000
• 2013 to 2014 foreign income £110,000
• 2013 to 2014 overseas capital gain £600,000
• 2010 to 2011 foreign income £850,000

Flavia nominates £1 million foreign income, transferring it to a new account (B) on 17 July 2018. Flavia leaves the balance of her funds in the original account (A).

The total amount of foreign income immediately before the transfer to account B was £960,000, Flavia’s transfer exceeds the total amount of foreign income contained in the account by £40,000.

This error means that Flavia has breached one of the cleansing conditions, instead of successfully cleansing the original account Flavia has engaged the mixed fund rules at section 809Q and 809R (that is the entire £1 million is taken to be an offshore transfer), creating another mixed fund. She will need to work out by applying these rules the proportion of income, gains and capital that this account contains.

Flavia can if she wished subsequently cleanse this account (B) by correctly applying the cleansing provisions so long as she is within the 2 year window.

Example 3

Brad has a pre-2008 mixed fund account. On 30 October 2007 a transfer of £100,000 was made from that account to another of Brad’s accounts. Immediately before this transfer the account contained:

• capital £200,000
• income £300,000
• chargeable gains £500,000

Totals £800,000

Proportionally this means:

Income is 37.5% and gains are 62.5% of the total income and gains held within the account.

Applying these proportions against the £100,000 transfer means that:

£37,500 income, and £62,500 gains were transferred from this account on 30 October 2007.

This leaves the balance remaining in the account after the transfer:

• capital £200,000
• income £262,500
• gains £437,500

If Brad meets the qualifying individual and cleansing conditions, he can if he so wishes cleanse this account.

Example 4

The facts are identical to example 3, but instead Brad makes a transfer from the account on the 30 October 2007 of £850,000.

The total amount of income and chargeable gains in the account immediately before the transfer was £800,000. The balance of £200,000 being capital.

This means that Brad transferred all the income and gains plus £50,000 of his capital, leaving a balance of £150,000 capital.

As this account now only contains one source of funds, the £150,000 capital, there is no need for Brad to apply the cleansing provisions to it.

Example 5

Sanjeev has 2 accounts which contain funds that arose before 6 April 2008. On 16 January 2007 a transfer was made from his British Virgin islands (BVI) account (the other account) of £2 million to his Jersey account (the mixed fund account).

After the transfer the Jersey account contains £7.8 million.

Sanjeev knew that prior to the transfer the Jersey account contained:

• capital £1.2 million
• income £4 million
• chargeable gains £600,000

Total £5.8 million

Sanjeev needs to follow steps 1 and 2 on his BVI account to work out what the £2 million transfer was.

The BVI account before the transfer contained:

• capital £450,000
• income £2.25 million
• chargeable gains £1.75 million

Total £4.45 million

Step 1 the total income and gains in the BVI account was:

• income £2.25 million
• chargeable gains £1.75 million

Total £4 million

Step 2 the proportions are:

• income 56.25%
• chargeable gains 43.75%

Applying these proportions to the £2 million transfer means that Sanjeev transferred:

• income £1.125 million
• chargeable gains £875,000

to his Jersey account

The Jersey account after the transfer contains:

• capital £1.2 million
• income £5.125 million
• chargeable gains £1.475 million

Total £7.8 million

Provided all the conditions are met Sanjeev can if he wishes cleanse his Jersey account.

Example 6

The facts are identical to example 5, except that Sanjeev does not know what was in his BVI account before the transfer.

He cannot complete steps 1 and 2, so the whole £2 million transfer to his Jersey account will be treated as income.

This means that after the transfer his Jersey account will contain:

• capital 1.2 million
• income £6 million
• chargeable gains £600,000

Total £7.8 million

Provided all the conditions are met Sanjeev can if he wishes cleanse his Jersey account.

Example 7

Multiple account nominations

Hamid is a qualifying individual. He has been continually resident in the UK since the tax year 2001 to 2002 and has always assessed himself on the remittance basis. Hamid has 4 offshore bank accounts:

• Isle of Man (IOM)
• Jersey
• Switzerland
• BVI

All these accounts are mixed fund accounts and are made up as below:

IOM account

• 1999 to 2000 £900,000 foreign earnings
• 2003 to 2004 £100,000 foreign income
• 2003 to 2004 £500,000 inheritance
• 2007 to 2008 £200,000 foreign gain

Jersey account

• 2008 to 2009 £500,000 inheritance
• 2010 to 2011 £600,000 foreign gain
• 2011 to 2012 £500,000 foreign income
• 2014 to 2015 £500,000 UK employment income

Switzerland account

• 2009 to 2010 £300,000 foreign earnings
• 2013 to 2014 £900,000 foreign gain
• 2015 to 2016 £100,000 foreign income
• 2015 to 2016 £400,000 UK employment income

BVI Account

• 2009 to 2010 £100,000 foreign gain
• 2009 to 2010 £50,000 foreign income
• 2010 to 2011 £2 million inheritance

Hamid wants to buy a new house in London in the near future and thinks he may need to remit some of his offshore funds for this purchase. He decides to take advantage of the cleansing provisions to simplify his finances going forward.

He decides to set up 3 new receiving accounts and nominates the following transfers into them on 2 October 2017:

• account 1 - £900,000 (total UK employment income from the Jersey and Swiss accounts)
• account 2 - £650,000 (total foreign income from the 3 accounts, Jersey, BVI and Swiss)
• account 3 - £1.6 million (total foreign gain from the 3 accounts, Jersey, BVI and Swiss)

Hamid leaves his £500,000 inheritance in the original Jersey account, the £2 million inheritance in the original BVI account and the £300,000 foreign earnings in the original Swiss account. These accounts have been cleansed.

On 12 December 2018 Hamid cleanses his IOM account. He transfers the 2003 to 2004 £100,000 foreign income into the existing account – account 2. Due to banking procedures the 2007 to 2008 foreign gain does not transfer to the receiving account – account 3 until 14 December 2018.

Hamid transfers the 2003 to 2004 inheritance into his original Jersey account, leaving the balance of £900,000 foreign earnings in the original IOM account. As Hamid has nominated all these transfers under the cleansing provisions he has successfully cleansed his IOM account.

If he wants to safeguard the 3 new accounts and his other 4 cleansed accounts from becoming mixed fund accounts in the future, Hamid will have to ensure that any funds accruing in each account (for example, interest) are paid into a separate account to prevent ‘tainting’ of the funds.

Published 31 January 2018
Last updated 9 March 2018 + show all updates

1. 9 March 2018

   Examples 2 and 7 have been updated for clarity.

2. 31 January 2018

   First published.