RDRM35420 - Remittance Basis: Amounts Remitted: Offshore Transfers: Offshore transfers - composition of transfer
Section 809R(4) ITA 2007 provides the rules that are required to determine what is regarded as ‘leaving’ the mixed fund where an offshore transfer occurs. This is necessary to determine the amounts of each type of income and capital contained in a mixed fund, in order that the ordering rules for remittances from mixed funds at section 809Q ITA 2007, and particularly steps A1 and 1 of section 809Q(3) can be applied.
Under the rules for offshore transfers the transfer from the mixed fund is regarded as consisting of the appropriate proportion of each and every amount of each kind of income and capital as contained in the mixed fund itself, immediately before the offshore transfer. Thus all the elements of the mixed fund reduce in proportion too.
From 6 April 2025, where foreign income and gains have been designated under the temporary repatriation facility (see RDRM71000), it is possible for a mixed fund to contain ‘TRF capital’ (see RDRM75100). For the purposes of the offshore transfer rules, TRF capital is treated as a kind of income and capital in the mixed fund, which is also reduced in proportion when there is an offshore transfer. The exception to this is where section 809RZA ITA 2007 applies to a transfer to a TRF capital account (see RDRM75310).
The term ‘appropriate proportion’ means the actual amount transferred (or the market value of an asset) divided by the value of the fund at the time of the transfer.
This means that, for example, where an individual sets up an additional offshore account and transfers funds between those accounts, remittances to the UK from any of these accounts are subject to the normal ordering rules for mixed funds (refer to example 1).
The practical effect is that if a new Fund B is created and funds are transferred to that account from existing Fund A it cannot be argued (for example) that Fund A contains only income and Fund B only capital. Instead both Fund A and Fund B are treated as containing the same proportion of capital and income as did the original fund and remittances are dealt with accordingly.
Similarly, property which was acquired with foreign income or gains is treated in exactly the same way as the foreign income or gains from which it was acquired (refer to example 2).
So, if an individual purchases an asset (such as a holding of shares in an overseas company) and then sells that property, the amount of money that is credited to the mixed fund is not capital. Instead, the amount is made up of the same amounts of capital and foreign income and gains that were used to purchase the shares. This means that it is not possible for foreign income and gains of an individual to be turned into capital and so become not taxable when remitted (refer to example 3).
Example 1
Marianne, a remittance basis user, has a bank account in Jersey which contains
- £30,000 TRF capital
- £40,000 relevant foreign earnings from 2010-11
- £8,000 relevant foreign income from 2010-11
- £10,000 relevant foreign earnings from 2009-10
- £5,000 relevant foreign income from 2009-10
- £2,000 clean capital from 2009-10
Marianne’s Jersey account contains TRF capital because in 2025-26 she designated £30,000 of relevant foreign income that was in the account and paid the TRF charge on that amount.
On 6 April 2028 she transfers half of the money in this Jersey account to another account in the Isle of Man. Both the Jersey and Isle of Man accounts are now regarded as containing:
- £15,000 TRF capital
- £20,000 relevant foreign earnings from 2010-11
- £4,000 relevant foreign income from 2010-11
- £5,000 relevant foreign earnings from 2009-10
- £2,500 relevant foreign income from 2009-10
- £1,000 clean capital from 2009-10
To note, the Isle of Man account is not a TRF capital account.
On 6 April 2029, Marianne remits £20,000 to the UK from her Jersey account. This is not subject to the proportional offshore transfer rules and so it is treated as comprising all £15,000 of TRF capital and £5,000 of her relevant foreign earnings from 2010-11 – see RDRM35240 for guidance on the ordering rules within section 809Q.
Example 2
Matilda, a former remittance basis user, has, on 6 April 2026, an offshore bank account consisting of £30,000 TRF capital, £20,000 relevant foreign income from 2020-21 and £10,000 foreign chargeable gains from 2019-20.
On 1 May 2026 she uses £15,000 of this money to purchase a crystal chandelier for her property in Switzerland. The £15,000 offshore transfer is regarded as consisting of the ‘appropriate proportion’ (£15,000/£60,000 which equates to one quarter) of the items in the mixed fund, that is £7,500 TRF capital, £5,000 relevant foreign income from 2020-21 and £2,500 foreign chargeable gains from 2019-20.
Example 3
Matthie has £100 of interest and £50 of capital which he uses to buy an asset in 2022-23. That asset is sold in 2024-25 for £180; the disposal proceeds are a mixed fund. The property (asset and then its disposal proceeds) derive from the interest and the capital and do not lose their character as interest and capital for 2022-23. The mixed fund is treated as containing the £100 of interest and £50 of capital from 2022-23 and £30 of gain from 2024-25.