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HMRC internal manual

Residence, Domicile and Remittance Basis Manual

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HM Revenue & Customs
Updated
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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

    Credit Debit Balance Category (S809Q(4))
           
2009-10          
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 (2010-11) £460,000  
     
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) £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 in Step 2 £460k less £300k = £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 Para (f) £120,000
Step 3 - If the amount at Step 2 is equal to or more 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 £nil  

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.