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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: Amounts Remitted: Mixed Funds: Example 3 - single remittance

Jeff has his UK salary of £10,000 a month paid into an overseas bank account. He also has a salary for overseas employment and his net salary for that work of £5,000 a month is paid into the same bank account. Both salaries are paid on the last day of each month. Dividends from a shareholding in a foreign company are also paid into the account.

In Year 0, Jeff had purchased shares in a foreign company for £8m. The £8m is accepted as representing Jeff’s ‘clean’ capital, being perhaps an inheritance or similar such windfall. Jeff sells the shares in Year 2 for £10m, which produces a £2m chargeable gain.

Jeff’s remittances to the UK from this fund in Year 2 are £10m.

His UK salary is credited net of PAYE and NIC. His overseas salary is subject to a foreign tax deducted at source, and is credited net. His overseas dividends are credited net of overseas withholding taxes.

Jeff’s overseas bank account

  Credit Debit Balance Category (S809Q(4))  
           
Year 1     £nil    
31 March UK salary (net of tax) £10,000   £10,000 Para (a)
31 March Overseas salary  (net of tax) £5,000   £15,000 Para (f)
Year 2          
30 Apr UK salary £10,000   £25,000 Para (a)
30 Apr Overseas salary £5,000   £30,000 Para (f)
15 May Dividend £2,000   £32,000 Para (g)
31 May UK salary £10,000   £42,000 Para (a)
31 May Overseas  salary £5,000   £47,000 Para (f)
18 June Sale of shares        
(£8m capital and £2m gain (no deduction of foreign tax) £2,000,000     Para (e)    
      £8,000,000   £10,047,000 Para (i)
  30 Jun UK salary £10,000   £10,057,000 Para (a)
  30 Jun Overseas  salary £5,000   £10,062,000 Para (f)
  25 Jul Dividend £2,000   £10,064,000 Para (g)
  31 Jul UK salary £10,000   £10,074,000 Para (a)
  31 Jul Overseas salary £5,000   £10,079,000 Para (f)
  31 Jul Bank interest £5,000   £10,084,000 Para (d)
  14 Aug Transfer to UK account   £10,000,000 £84,000  
      Credit Debit Balance Category (S809Q(4))

Applying the ordering rules in S809Q to the account

Apply immediately before the transfer

Step 1 – Identify the ‘amount of transfer’ in the relevant tax year (Year 2) £10,000,000  
     
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 (including UK employment income) not subject to a foreign tax Year 1 - £10,000
Year 2 - £40,000    
  Para (d) Relevant foreign income (not subject to a foreign tax) Bank interest
Year 2 - £5,000    
  Para (e) Foreign chargeable gains (not subject to a foreign tax) Year 2 - £2,000,000
  Para (f) Employment income subject to a foreign tax Year 1 - £5,000
Year 2 - £20,000    
  Para (g) Relevant foreign income subject to a foreign tax Foreign dividends
Year 2 - £4,000    
  Para (i) Capital Capital from Year 0
£8,000,000      
  Step 2 – Identify the earliest paragraph above for the relevant year (Year 2), which has an amount of income or gain in the mixed fund Para (a) £40,000
  Step 3 - Where the amount of the remittance is greater than the amount identified at Step 2 the amount remitted is treated as reduced by the amount identified in Step 2 £10m less £40k =  
£9,960,000      
  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 Para (d) £5,000
  Step 3 £9,955,000  
  Step 4 - In the order of preference listed above repeat Steps 2 and 3    
  Step 2 Para (e) £2m
  Step 3 £7,955,000  
  Step 4 - In the order of preference listed above repeat Steps 2 and 3    
  Step 2 Para (f) £20,000
  Step 3   £7,935,000
  Step 4 - In the order of preference listed above repeat Steps 2 and 3    
  Step 2 Para (g) £4,000
  Step 3   £7,931,000
  At this point all of the income of Year 2 has been matched against the remittance.    
  Step 5 – If the amount of the transfer (as reduced under Step 3) is not nil once steps 2 and 3 have been undertaken for all of the capital, income and gains of the relevant tax year repeat the exercise using the income, capital and gains of the next earliest year (Year 1)    
  Step 2 Para (a) £10,000
  Step 3 £7,921,000  
  Step 4 - In the order of preference listed above repeat Steps 2 and 3    
  Step 2 Para (f) £5,000
  Step 3 £7,916,000  
  At this point all of the income of Year 1 has been matched against the remittance    
  Step 5 – If the amount of the transfer (as reduced under Step 3) is not nil once steps 2 and 3 have been undertaken for all of the capital, income and gains of the relevant tax year repeat the exercise using the income, capital and gains of the next earliest year (Year 0)    
  Step 2 - If the amount is more than the [residual] ‘relevant amount’, treat the whole of the remittance as coming from that item of income or gain Para (i) £8m

The result of this exercise is that:

  • All of Jeff’s UK salary in tax year 2 is deemed to have been brought to the UK first.
  • Similarly all of his foreign income and gains of tax year 2 are treated as remitted to the UK and chargeable to tax at the appropriate rates of tax - allowing credit for foreign taxes charged on that same income as appropriate.
  • Jeff’s income of Year 1 is also matched against the remittance.
  • £7,916,000 capital has also been brought to the UK.

Until such time as further amounts of income and gains are credited to the overseas account, the mixed fund contains £84,000 of capital from Year 0 (from the sale of shares).

Refer to RDRM35310 example 3 (continuation) remittance of funds covering two years