EIM43660 - Globally mobile employees: Overseas Workday Relief: pre-6 April 2025 tax years: General earnings and mixed funds
A mixed fund is an overseas fund of money, other property, or both, which contains or consists of more than one type of income, gains or capital, or income, gains or capital from more than one tax year (see RDRM35220).
Once an amount enters a mixed fund it loses its ‘identity’ within the fund and so where there is a transfer out of that fund, ordering rules are applied to determine what a transfer from that mixed fund consists of, and consequently, whether that transfer results in a taxable remittance (see RDRM35240).
To apply the mixed fund ordering rules, it is necessary to determine the character of each payment into the fund, including the extent to which it is made up of either section 15 earnings or section 26 earnings.
In the mixed fund ordering rules, transfers to the UK are treated as being sourced from section 15 earnings in priority to section 26 earnings from the same year. Therefore, any remittances out of the fund will be treated as the latest tax year’s section 15 earnings until they are exhausted, before any remittances are treated as comprising section 26 earnings from that tax year, or any other income or capital in the fund.
When does a mixed fund arise?
When an employer pays an employee’s earnings into an offshore bank account, if the payment contains a mix of section 15 earnings and section 26 earnings, the account into which the earnings are paid becomes a mixed fund as defined within section 809Q(6) ITA 2007 (if it was not already a mixed fund).
A mixed fund exists only once the earnings are in the hands of the employee, with the character of those earnings being determined at the time the payment was made by the employer.