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HMRC internal manual

Residence, Domicile and Remittance Basis Manual

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HM Revenue & Customs
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Remittance Basis: Identifying Remittances: Specific Topics: Joint Accounts - example

Erica and John have been married for several years, and currently live in the UK. John is domiciled within the UK. Erica is not domiciled in the UK. Erica decides to claim the remittance basis for this year.

Both Erica and John have employment income that is credited to the account. For most of the year Erica works in the UK but she also has a separate part-time employment with a foreign employer outside of the UK for part of the year.

Erica and John have a joint bank account in the Isle of Man. Into this account is paid both of their salaries, and some bank interest. They use the account to pay their household bills, including the mortgage on their jointly owned UK home.

Table to show the amounts credited to the account

Date   Credit Debit Balance
         
  Opening Balance     £0
30 April UK salary (Erica) £3,000   £3,000
30 April UK salary (John) £2,000   £5,000
30 April Overseas salary (not subject to foreign tax) (Erica) £2,000   £7,000
30 April Bank interest not taxed £200   £7,200
1 May Direct debit - UK energy coy   (£200) £7,000
5 May Cash withdrawal (UK)   (£1,000) £6,000
10 May Cash withdrawal (UK)   (£1,000) £5,000
17 May Direct debit - mortgage   (£3,000) £2,000
31 May UK salary (Erica) £3,000   £5,000
31 May UK salary (John) £2,000   £7,000
31 May Overseas salary (not subject to foreign tax) (Erica) £800   £7,800
1 June Direct debit - UK energy coy   (£200) £7,600
5 June Cash withdrawal (UK)   (£1,000) £6,600
10 June Cash withdrawal (UK)   (£800) £5,800
17 June Direct debit - mortgage   (£3,000) £2,800

The credits and the debits account can be analysed between Erica and John with the following results

  Erica John Overall
Account Balance                  
                   
      Credit Debit Balance Credit Debit Balance  
  30 April UK salary              
Note 1 £3,000   £3,000       £3,000
  30 April UK salary          
Note 1       £2,000   £2,000 £5,000    
  30 April Overseas salary  £2,000   £5,000       £7,000
  30 April Bank interest              
Note 2 £100   £5,100 £100   £2,100 £7,200    
  1 May Direct debit to UK energy coy   £100 £5,000   £100 £2,000 £7,000
  5 May Cash w/drawn(UK)              
Note 3   £1,000 £4,000       £6,000    
  10 May Cash w/drawn(UK) Note 3         £1,000 £1,000 £5,000
  17 May Direct debit – mortgage Note 4   £2,000 £2,000   £1,000 £nil £2,000
  31May UK salary £3,000   £5,000       £5,000
  31May UK salary       £2,000   £2,000 £7,000
  31May Overseas salary  £800   £5,800       £7,800
  1 June Direct debit to UK energy supplier   £100 £5,700   £100 £1,900 £7,600
  5 June Cash w/drawn (UK)   £1,000 £4,700       £6,600
  10 June Cash w/drawn (UK)         £800 £1,100 £5,800
  17 June Direct debit -mortgage  Note 4   £1,900 £2,800        
    £1,100 Nil £2,800

Note 1: Earned income is attributed to the employee only.

Note 2: Because this is a joint account, the interest arising on it is split equally between Erica and John.

Note 3: This money is withdrawn in the UK by John and Erica to meet their own personal expenditure, for example travel, meals and so on.

In this example John’s ‘personal expenditure’ can be attributed to his ‘income’ credits into the account. If instead the withdrawals by John were regarded as coming from Erica’s ‘portion’ of the pot, because John is a relevant person and money has been brought into the UK by a relevant person (so Condition A of ITA07/s809L(2)(a) is met (refer to RDRM33120: Condition A - money and property) there might still be a taxable remittance, with the tax due payable by Erica (see below).

Note 4: The mortgage payment is made to a UK bank. The mortgage is held on John and Erica’s UK home and is a joint debt of Erica and John, and each contributes half of the cost. To the extent that John has money in the account it can be accepted that he has used his taxed income to pay his share of the mortgage.

Money has been brought into the UK to pay this mortgage, so Condition A of ITA07/s809L(2)(a) is met (refer to RDRM33120: Condition A - money and property) and there is a ‘transfer’ from a mixed fund.

Because this is a mixed fund ITA07/s809Q(2) is in point (refer to RDRM35230: Remittances from mixed funds). So in order to determine whether this money is regarded as consisting of, or deriving from, a remittance basis users foreign income or gains (such that there is a taxable remittance under Condition B of ITA07/s809L(2)(a)) it is necessary to look at the composition of the fund immediately before the ‘transfer’.

This shows that £2,000 of the mortgage payment made on 17 May must be attributable to Erica’s income or gains in the mixed fund. Similarly, £1,900 of the mortgage payment of 17 June is attributable to Erica’s income in the mixed fund.

So far as Erica is concerned, her share of the account shows (for the purposes of calculating if and to what extent she has made a taxable remittance of her overseas income) is as follows:

Erica’s share of the account

    Credit Debit Category (S809Q(4))
         
30 April UK salary £3,000   Para (a)
30 April Overseas salary (not subject to foreign tax) £2,000   Para (b)
30 April Bank interest £100   Para (d)
1 May Direct Debit (energy coy   £100  
10 May Cash   £1,000  
17 May Direct Debit (mortgage)   £2,000  
31 May UK salary £3,000   Para (a)
31 May Overseas salary £800   Para (b))
1 June Direct Debit (energy)   £100  
5 June Cash   £1,000  
17 June Direct Debit (mortgage)   £1,900  

Applying the rules at ITA07/s809Q (refer to RDRM35230 Remittances from mixed funds) to the first ‘transfer’ to the UK, which is the payment to the energy company on 1 May. Remember the mixed fund rules require the account to be analysed before every ‘transfer’

Table of the mixed fund rules to be applied before every ‘transfer’

Step 1 – Identify the ‘amount of transfer’ in the relevant year   £100
     
Analyse mixed fund to identify the separate amounts of income, capital gains and capital present for each tax year immediately before the date of the transfer Para (a) Employment income (UK employment income) £3,000
Para (b) Relevant foreign earnings (not subject to a foreign tax) £2,000  
Para (d) Relevant foreign income (not subject to a foreign tax) £100  
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) £3,000
Step 3 If the amount at Step 2 is equal to or more than the amount of the transfer treat the whole of the remaining amount of the transfer as coming from that item of income or gain    

So Erica’s transfer of £100 is treated as coming from her UK employment income; it is not thus a ‘taxable’ remittance when brought to the UK.

Then apply the rules at ITA07/s809Q (refer to RDRM35230 Remittances from mixed funds) to the next ‘transfer’ to the UK, which is the cash withdrawal.

Apply the rules at ITA07/s809Q to the next ‘transfer’ to the UK, which is the cash withdrawal

Step 1 – Identify the ‘amount of transfer’ in the relevant year   £1,000
     
Analyse mixed fund to identify the separate amounts of income, capital gains and capital present for each tax year immediately before the date of the transfer Para (a) Employment income (UK employment income) £2,900
Para (b) Relevant foreign earnings (not subject to a foreign tax) £2,000  
Para (d) Relevant foreign income (not subject to a foreign tax) £100  
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) £1,900
Step 3 If the amount at Step 2 is equal to or more than the 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    

So Erica’s transfer of £1,000 is treated as coming from her UK employment income; it is not thus a ‘taxable’ remittance when brought to the UK.

Then apply the rules at ITA07/s809Q (refer to RDRM35230 Remittances from mixed funds) to the next ‘transfer’ to the UK, which is the mortgage payment.

Then apply the rules at ITA07/s809Q to the next ‘transfer’ to the UK, which is the mortgage payment

Step 1 – Identify the ‘amount of transfer’ in the relevant year   £2,000
     
Analyse mixed fund to identify the separate amounts of income, capital gains and capital present for each tax year immediately before the date of the transfer Para (a) Employment income (UK employment income) £1,900
Para (b) Relevant foreign earnings (not subject to a foreign tax) £2,000  
Para (d) Relevant foreign income (not subject to a foreign tax) £100  
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) £1,900
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 in Step 2 £2,000  

£1,900

£100      
  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) £100
  Step 3 If the amount at Step 2 is equal to or more than the 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    

£1,900 of the transfer is treated as coming from Erica’s UK employment income; it is not thus a ‘taxable’ remittance when brought to the UK. The remaining £100 is treated as a remittance of £100 of Erica’s untaxed overseas earnings.