IFM37350 - Foreign chargeable gains:Mixed funds

Mixed funds

TCGA92/S103KA - S103KC

ITA07/S809Q

In general where a remittance of a sum is made to the UK which comprises various items for tax purposes, the mixed funds rules determine the order in which sums are treated as remitted to the UK. Core mixed funds rules can be found at ITA07/S809Q.

Carried interest may comprise foreign chargeable gains and “UK chargeable gains” (taxable on the arising basis when arising to a remittance basis tax payer). If a sum of carried interest was to be considered from a mixed fund, the foreign chargeable gain would be treated as remitted in priority to the UK chargeable gain being taxed under the arising basis. The individual would therefore be required to pay tax on that foreign chargeable gain when making a remittance, in addition to paying tax due on the chargeable gain being taxed under the arising basis. This is in line with ITA07/S809Q.

In circumstances where a non-domiciled individual performs services that give rise to carried interest in the UK and one or more jurisdictions, the carried interest rules produce two separate gains, one relating to UK services and one relating to non-UK services. As two gains are brought into existence at the same time there is no mixed fund from the perspective of the individual in the account of the payor. It is therefore possible to split a sum of carried interest into two separate payments, with one being the foreign chargeable gain. If these two funds are never comingled, a mixed fund will not come into existence.

This does not alter the application of the mixed funds rules to the extent that each of the two carried interest gains may represent a mixed fund of different items determined on general principles. It only applies to the joint effect of TCGA92/S103KA and TCGA92/S103KC with the result that the gains those sections give rise to will not constitute elements of a single mixed fund unless they are actually paid into a single account, thus making that account a mixed fund.

This analysis derives from the terms of TCGA92/S103KC. HMRC do not consider it justifiable in respect of any other situation or potential mixed fund.