RDRM35700 - Remittance basis: Mixed funds: Cleansing of mixed funds: A transfer made into a pre-2008 mixed fund before 6 April 2008

If there had been a transfer into the pre 2008 mixed fund before 6 April 2008 from another offshore account, the individual would have needed to take the following steps.

Step 1

Calculate the total amount of income and chargeable gains in that other overseas account immediately before the transfer took place.

Step 2

Once identified work out what proportion of the total income and chargeable gains is income and what proportion is chargeable gains.

The transfer to the mixed fund account will consist of income and chargeable gains in the proportions as worked out at step 2.

Example C

Sanjeev has 2 accounts which contain funds that arose pre 6 April 2008. On 16 January 2007 a transfer was made from his BVI account (the other account) of £2 million to his Jersey account (the mixed fund account).

After the transfer the Jersey account contains £7.8 million.

Sanjeev knew that prior to the transfer the Jersey account contained:

Capital £1,200,000

Income £4,000,000

Chargeable Gains £600,000Total £5.8 million

Sanjeev needs to follow steps 1 and 2 on his BVI account to work out what the £2 million transfer was.

The BVI account before the transfer contained:

Capital £450,000

Income £2,250,000

Chargeable Gains £1,750,000Total £4,450,000

Step 1 the total income and gains in the BVI account was:

Income £2,250,000

Chargeable Gains £1,750,000Total £4 million

Step 2 the proportions are:

Income 56.25%

Chargeable gains 43.75%

Applying these proportions to the £2 million transfer means that Sanjeev transferred:

Income £1,125,000

Chargeable Gains £875,000 to his Jersey account.

The Jersey account after the transfer contains:

Capital £1,200,000

Income £5,125,000

Chargeable Gains £1,475,000Total 7.8 million

Provided all the conditions are met Sanjeev can if he wishes cleanse his Jersey account.

If the individual cannot identify the make-up of the transfer, because they do not have sufficient evidence of what was in the other account, then the transfer will be treated as income.

So instead

Example D

The facts are identical to example C, except that Sanjeev does not know what was in his BVI account before the transfer.

He cannot complete steps 1 and 2, so the whole £2 million transfer to his Jersey account will be treated as income.

This means that after the transfer his Jersey account will contain:

Capital 1,200,000

Income £6,000,000

Chargeable Gains £600,000Total £7.8 million

Provided all the conditions are met Sanjeev can if he wishes cleanse his Jersey account.