RDRM35245 - Remittance basis: Amounts remitted: Mixed funds: Remittances from mixed fund: Payment of remittance basis charge

Olga’s tax bill for 2008-09 is £188,000. She arranges for payment of £282,000 to be made direct to HMRC from her Guernsey bank account which is a mixed fund. £30,000 of the payment relates to the Remittance Basis Charge (RBC) for 2008-2009 and £15,000 to payment on account of the RBC for 2009-2010.

As Olga has made the payment from a mixed fund, she must analyse the mixed fund to establish what it is that she has brought to the UK to ascertain whether there is a taxable remittance (that is whether Condition B of ITA07 s809L is met) and what qualifies for exemption available under ITA07 s809V.

Immediately before the payment of £282,000 was made to HMRC Olga’s Guernsey bank account contained the following:

At 5 April 2008 – Foreign Income £1,245.500

Capital £2,130,000

On 19 April 2008 a bequest under the Will of Olga’s aunt of £50,000 is paid into the account

On 30 June 2008 interest of £63,000 is credited to the account

On 28 August 2008 foreign dividend income of £65,100 is paid into the account

On 14 November 2008 £75,000 is paid into the account representing Olga’s bonus from her UK employment

On 31 December 2008 interest of £65,610 is credited to the account

No payments or withdrawals were made during 2009-2010.

The ordering rules in ITA07 s809Q(3) and (4) (see RDRM35200) establish that the £282,000 brought to the UK represents a remittance of:

UK employment income 2008-2009 £75,000

Relevant foreign income 2008-2009 £193,710 (£63,000 + £65,100 + £65,610)

Capital 2008-2009 £13,290 (part of the inheritance of £50,000)

Total £282,000

There is a taxable remittance of £193,710. However, Olga is entitled to exemption in respect of money brought to the UK to pay the RBC so, it is necessary to identify what part of the remittance relates to payment of the RBC, which qualifies for exemption, and what part relates to the remainder of the tax bill.

There are no statutory rules to determine the position so once the ordering rules have been applied Olga can allocate the identified sources in the way most beneficial to herself. In the example above Olga would treat the RBC as having been paid out of relevant foreign income (the interest and foreign dividends) leaving her general tax liability as having been paid out of interest and foreign dividends of £148,710, UK employment income of £75,000 and capital of £13,290. As such, the taxable remittance is restricted to £148,710.

Note – If Olga makes a payment of exactly £45,000 from the mixed fund, she must still complete the analysis to identify what she has brought to the UK, because the relevant amounts must be eliminated from the mixed fund so that the revised state of the mixed fund is known for future withdrawals from the fund.