RDRM35620 - Remittance basis: Mixed funds: Cleansing of mixed funds: Cleansing conditions

There were a number of conditions which must have been fulfilled by the individual to have successfully cleansed their mixed fund account(s):

  • The cleansing provisions can only be applied within a 2-year window, beginning on 6 April 2017 and ending on 5 April 2019. If the nomination(s) and transfer(s) are not carried out within this period, the legislation at section 809R ITA 2007 remains applicable.
  • Cleansing is restricted to money. Money takes its normal meaning in this context.
  • The transfer(s) must be from one overseas account to another overseas account(s).
  • The transfer(s) must be nominated by the individual.
  • No transfer from account A to account B must have previously been nominated.
  • P is a qualifying individual at the time of transfer
  • The transfer from the original account to the new account must be made up of either the whole or part of the income, gains and capital which were in the account immediately before the transfer. The amount(s) from any of these categories must be specified when making the nomination.
  • At the time of the transfer the specified amounts of income, gains or capital cannot exceed those same amounts that were in the original mixed fund account prior to the transfer.

For the purpose of the above, ‘mixed fund’ and ‘offshore transfer’ have the same meaning as in section 809R (4) of ITA 2007.

Example

Pascal, a qualifying individual, has a mixed fund account (Account 1) that he wishes to cleanse. It contains:

2014-2015 £2 million overseas employment income

2014-2015 £7 million overseas capital gain

2014-2015 £10 million clean capital

2014-2015 £10 million overseas trading income

2015-2016 £1 million overseas trading income

2015-2016 £5 million clean capital

2016-2017 £2 million overseas employment income

2016-2017 £8 million capital gain

Total £45 million

In June 2017 Pascal sets up 2 new overseas bank accounts (Accounts 2 and 3). On 1 August 2017 he nominates the following transfers from account 1 to these 2 accounts:

Account 2

  • 2014-2015 £10 million clean capital
  • 2015-2016 £5 million clean capital

Account 3

  • 2014-2015 £2 million overseas employment income
  • 2016-2017 £2 million overseas employment income

A balance of £26 million remains in the original account (Account 1), which remains a mixed fund, as it contains funds from a number of sources.

If Pascal wishes to cleanse the remaining funds in this account, which after the nominations to Accounts 2 and 3 now contains:

2014-2015 £7 million overseas capital gains

2014-2015 £10 million overseas trading income

2015-2016 £1 million overseas trading income

2016-2017 £8 million overseas capital gain

Pascal cannot make a further nomination of the £11 million overseas trading income to account 3 (the income account) as he has already nominated a transfer from Account 1 to Account 3. Instead, he would have to either:

  • set up a new receiving account and make the nominated transfer to that, or
  • make a nominated transfer to an existing account which contained the same type of funds – income – and had not previously received any nominated transfers from his original mixed fund Account 1

Pascal makes the following nominated transfers to a new offshore account (Account 4) in January 2019:

Account 4

  • 2014-2015 £10 million overseas trading income
  • 2015-2016 £1 million overseas trading income

He leaves the totals of £15 million capital gains from years 2014-2015 and 2016- 2017 in Account 1 (his original mixed fund account), which has now been cleansed.

Pascal now has 4 separate overseas bank accounts, each one containing only one source of funds, none of which are mixed funds.

To prevent ‘tainting’ any cleansed accounts in the future Pascal will have to ensure that any funds accruing in the accounts, for example interest, are paid into a separate account(s).