RDRM35640 - Remittance basis: Mixed funds: Cleansing of mixed funds: Nomination

Individuals must have nominated all the transfers of income, gains and capital from the mixed fund account that they wished to cleanse. There is no formal nomination process, but records of all nominations must be retained as part of the existing obligations of a taxpayer under Section12B of the Taxes Management Act (TMA) 1970.

All nominations must have been made within the 2-year window. Any nominations made outside this window will not be valid for cleansing purposes. To cleanse a mixed fund account the individual nominates the amounts to be transferred out of the original account into new account(s) under the cleansing provisions.

Example

Toby, who has used the remittance basis in at least one tax year between 2008-2009 and 2016-2017 (inclusive), has a mixed fund account (Account A) and decides to cleanse this.

It contains in total £10 million.

It has been open since 2010 with deposits being made in a number of years since.

It is made up of relevant foreign income of £2 million and £5 million of foreign capital gains and £3 million of relevant foreign earnings.

On 16 January 2018 Toby opens a new offshore account – the Capital Gains Account and transfers £5 million to it, this being the total of foreign gains contained in the original account.

On 17 June 2018 Toby opens another new offshore account – the Foreign Earnings Account and transfers £3 million to it, this being the total of foreign earnings contained in the original account.

Both nominations are valid under the cleansing provisions and Toby has successfully cleansed the original mixed fund Account A.

The £2 million left in account A consists solely of relevant foreign income.

Individuals could if they so desired make multiple nominations from any one account, so long as, at the time of the nomination, no other transfer from the original account to the ‘new’ account has been so nominated.

Example – Multiple Account Nominations

Hamid is a qualifying individual. He has been continually resident in the UK since the tax year 2001-2002 and has always assessed himself on the remittance basis. Hamid has 4 offshore bank accounts, one in the Isle of Man (IOM), one in Jersey, one in Switzerland and one in the British Virgin Islands (BVI). All these accounts are mixed fund accounts and are made up as below:

IOM Account

  • 1999-2000 £900,000 foreign earnings

  • 2003-2004 £100,000 foreign income
  • 2003-2004 £500,000 inheritance
  • 2007-2008 £200,000 foreign gain

Jersey Account

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

Swiss Account

  • 2009-2010 £300,000 foreign earnings

  • 2013-2014 £900,000 foreign gain
  • 2015-2016 £100,000 foreign income
  • 2015-2016 £400,000 UK employment income

BVI Account

  • 2009-2010 £100,000 foreign gain
  • 2009-2010 £50,000 foreign income
  • 2010-2011 £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 sets 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 2003-2004 £100,000 foreign income into the existing account – Account 2.

The £200,000 2007-2008 foreign gain is transferred into Account 3.

Hamid transfers the 2003-2004 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 etc.) are paid into a separate account to prevent ‘tainting’ of the funds.