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HMRC internal manual

Residence, Domicile and Remittance Basis Manual

Remittance Basis: Identifying Remittances: Specific Topics: Banking Issues

Bank Errors and Mistakes

Where a bank acts contrary to express instructions by an account holder, and that mistake inadvertently results in a taxable remittance to the UK by the account holder, the account holder and the bank may alter the transaction in line with the original instructions given.

If the bank does this, HMRC will treat the earlier [mistaken] transaction as not having taken place and the new transaction as being the original transaction in looking at whether there has been a taxable remittance from that account.

Banking Transactions

Transfers between foreign centres often pass through the UK banking system, for example when a sterling payment is made abroad and the payment is cleared through London in the normal banking process.

In such circumstances HMRC do not regard the passage of funds through the UK as being a taxable remittance.

The machinery employed is irrelevant provided that, without express provision, the individual has:

  • no right to payment at any intermediate point; and
  • no control over the funds transferred by their foreign bank to secure payment at the agreed point.

Bank Accounts and Mixed Funds

A mixed fund does not exist just because the individual has several accounts with the same banking institution, if each account is separately constituted and contains only one of the relevant types of income from only one year. This will usually include bank accounts set up as sub-accounts under an ‘umbrella’ agreement.

If income and capital sources from a tax year are maintained separately (sometimes referred to as ‘kept clean’ or ‘clean capital’) no mixed fund is created, and so these rules will not apply.

As long as these accounts do not become mixed funds, the individual can bring money into the UK from Account B and that will be accepted as a being a transfer of ‘clean’ capital, and so will not be a taxable remittance.

Refer to RDRM35200 for information about remittances from a mixed fund.

Interest credits to a capital account

Often interest on a maturing deposit is credited to the same account comprising the principal capital investment, but under the bank’s normal internal system the interest is then immediately and identifiably transferred to an income account.

Where a mixed fund such as this is created fleetingly by an operation of the banking system, HMRC will accept that the interest credit will not taint the principal and so the mixed fund rules in ITA07/s809Q to s809S do not apply.

Refer to RDRM35200 for information about remittances from a mixed fund.

If during the course of an enquiry you are unsure whether these points apply to a particular transaction please make a full report to Specialist Personal Tax, PTI Advisory, Foreign Income and Remittance Basis Team.