RDRM35280 - Remittance Basis: Amounts Remitted: Mixed Funds: Example 1 - purchase of asset
Amelia, a remittance basis user, has foreign earnings from two employers totalling £40,000 per month, half of which is subject to foreign tax, and relevant foreign income of £10,000 per quarter, none of which is subject to foreign tax. She also has some of her UK employment income (£50,000 per month) which has already been subject to tax in the UK paid into the same Canadian bank account.
On 15 October 2010 Amelia a keen aviator, decides to use the funds in this account to indulge her hobby, so she purchases a light aircraft for £460,000, which she keeps at Cambridge airfield.
Table of Purchase of assets (2009-2010)
| Date | Descriptor | Credit | Debit | Balance | Category (S809Q(4)) |
|---|---|---|---|---|---|
| 30 April | UK salary | £50,000 | - | £50,000 | Para (a) |
| 30 April | Overseas salary (not subject to foreign tax) | £20,000 | - | £70,000 | Para (b) |
| 30 April | Overseas salary (subject to foreign tax) | £20,000 | - | £90,000 | Para (f) |
| 31 May | UK salary | £50,000 | - | £140,000 | Para (a) |
| 31 May | Overseas salary (not subject to foreign tax) | £20,000 | - | £160,000 | Para (b)) |
| 31 May | Overseas salary (subject to foreign tax) | £20,000 | - | £180,000 | Para (f) |
| 2 June | Relevant Foreign Income | £10,000 | - | £190,000 | Para (d) |
| 30 June | UK salary | £50,000 | - | £240,000 | Para (a) |
| 30 June | Overseas salary (not subject to foreign tax) | £20,000 | - | £260,000 | Para (b)) |
| 30 June | Overseas salary (subject to foreign tax) | £20,000 | - | £280,000 | Para (f) |
| 31 July | UK salary | £50,000 | - | £330,000 | Para (a) |
| 31 July | Overseas salary (not subject to foreign tax) | £20,000 | - | £350,000 | Para (b) |
| 31 July | Overseas salary (subject to foreign tax) | £20,000 | - | £370,000 | Para (f) |
| 31 August | UK salary | £50,000 | - | £420,000 | Para (a) |
| 31 August | Overseas salary (not subject to foreign tax) | £20,000 | - | £440,000 | Para (b) |
| 31 August | Overseas salary (subject to foreign tax) | £20,000 | - | £460,000 | Para (f) |
| 2 Sept | Relevant Foreign Income | £10,000 | - | £470,000 | Para (d) |
| 30 Sept | UK salary | £50,000 | - | £520,000 | Para (a) |
| 30 Sept | Overseas salary (subject to foreign tax) | £20,000 | - | £540,000 | Para (f) |
| 30 Sept | Overseas salary (not subject to foreign tax) | £20,000 | - | £560,000 | Para (b) |
| 15 Oct | Aircraft purchase | - | £460,000 | £100,000 | - |
Steps to follow
Step 1
Identify the amount of transfer in the relevant year (2010-2011) - £460,000
Analyse the mixed fund to identify the separate amounts of income, capital gains and capital present for each tax year immediately before the date of transfer:
- Para (a) employment income (UK employment income) £300,000
- Para (b) relevant foreign earnings (not subject to a foreign tax) £120,000
- Para (d) relevant foreign income (not subject to a foreign tax) £20,000
- Para (f) employment income subject to a foreign tax £120,000
Step 2
Identify the earliest paragraph above for the relevant year, which has an amount of income or gain in the mixed fund – para (a) £300,000
Step 3
Where the amount transferred is greater than the amount identified at Step 2, the amount transferred is treated as reduced by the amount identified at Step 2, £460,000 less £300,000 = £160,000.
Step 4
Find the next paragraph/amount for that tax year. In the order of preference listed above repeat Steps 2 and 3.
Step 2
Repeated – para (b) £120,000
Step 3
Repeated – Amount transferred further reduced to £40,000
Step 4
In the order of preference listed above repeat Steps 2 and 3.
Step 2
Repeated – para (d) £20,000
Step 3
Repeated – Amount transferred further reduced to £20,000.
Step 4
In the order of preference listed above repeat Steps 2 and 3.
Step 2
Repeated – para (f) £120,000
Step 3
If the amount at Step 2 is equal to or greater than the remaining amount of the transfer (the last time Step 3 was completed), treat the whole of the remaining amount of the transfer as coming from that item of income or gain.
There has been a transfer to the UK of £460,000. Of this, £300,000 is from UK employment income which has already been taxed, so will not be taxed again. There have also been taxable remittances of Amelia’s relevant foreign earnings (£140,000 (£20,000 of which was subject to a foreign tax) and relevant foreign income (£20,000).
£100,000 of taxed foreign employment income (Para f) remains in the offshore account fund.