Remittance basis: mixed funds: ordering rules: example
Dmitri is a remittance basis user in all tax years. As at 31 December 2010 he has a bank account in Moscow which contains the money from several sources (sterling used throughout for simplicity- see CG25391 - CG25394 for notes on exchange differences).
On 31 May, he uses £500,000 from this account to buy a small football club in Scotland. Has any of the income or gains been remitted to the United Kingdom?
The bank account is a mixed fund because it contains, or derives from, more than one of the kinds of income and capital listed at ITA07/S809Q(4). Money or other property has been brought to, received or used in the UK by a relevant person (Dmitri) and so the first condition A for there to be a “basic remittance” is met (see CG25341 above). The matching rules in ITA07/S809Q therefore apply to determine whether the second condition B is also met and, if so, the amount of income or gains remitted.
Step 1: categorise the mixed fund
|Employment income (2009-10; not taxed)||£25,000|
|Relevant foreign income|
|(2009-10 dividends from non-UK companies; not taxed)||£5,000|
|Foreign chargeable gains (2009-10; not taxed)||£100,000|
|(return of capital on non-UK assets sold in 2009-10)||£500,000|
These categories and others, and the order in which they are to be considered, are specified by ITA07/S809Q(4).
Step 2: match the transfer with the first category.
The amount in the first category (employment income; £25,000) is less than the amount transferred (£500,000) so the transfer is treated as containing all that income.
Step 3: reduce the amount transferred.
The reduced amount of the transfer is £500,000 - £25,000 = £475,000
Step 4: return to step 2
Step 2(2): match the transfer with the second category
The amount in the second category (relevant foreign income; £5,000) is less than the reduced amount transferred (£475,000) so the transfer is treated as containing all that income.
Step 3(2): reduce the amount transferred
The reduced amount of the transfer is £475,000 - £5,000 = £470,000
Step 4(2): return to step 2
Step 2(3): match the transfer with the third category
The amount in the third category (foreign chargeable gains; £100,000) is less than the reduced amount transferred (£470,000) so the transfer is treated as containing all those gains.
Step 3(3): reduce the amount transferred
The reduced amount of the transfer is £470,000 - £100,000 = £370,000
Step 4(3): return to step 2
Step 2(4): match the transfer with the fourth category
The amount in the third category (other capital; £500,000) is more than the reduced amount transferred (£370,000) so the transfer is treated as containing £370,000 of capital. (If the £500,000 capital comes equally from two sources, the transfer is treated as containing £185,000 from each source.)
In summary, the transfer is treated as a remittance of £25,000 employment income plus £5,000 relevant foreign income plus £100,000 foreign chargeable gain and tax is charged accordingly.
Going forward, the balance of £130,000 in the mixed fund is treated as consisting wholly of capital.