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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: Offshore Transfers: Composition of a mixed fund - offshore transfers - Example 1 - (continuation) transfer to another account

Continue the IoM account in example 1

Date   Debit Credit Balance Category S809Q(4) Note
             
  Balance b/f     £32,000    
31 Aug Overseas salary (net of tax) £5,000     f  
31 Aug UK salary £10,000     a  
3 Sept Transfer to UK account   £5,000     1
15 Sept Cheque - XYZ Travel Services (CI) Ltd   £10,000     2
30 Sept Overseas salary (net of tax) £50,000     f  
30 Sept Overseas Dividend £350,000     g  
30 Sept UK salary £180,000     a  
3 Oct Transfer to UK account   £5,000     3
15 Oct Transfer to Swiss bank account   £350,000     4

Contents of the mixed fund as of the 3 September

Note 1 - Immediately before the transfer on 3 September the mixed fund contained

Para (a) Employment Income £10,000
     
Para (f) Earnings subject to a foreign tax £5,000
Para (i) Income or capital not within another paragraph £32,000

The transfer is regarded as coming from the ‘earliest paragraph’, that is Para (a), so the £5,000 is UK employment income. Although money has been brought into the UK, there is no taxable remittance as the money has already been taxed.

Note 2 - The next payment from the account is £10,000 for the family holiday flights to the USA. The full payment is a remittance because the service provided is in the UK - the flights begin or end in London.

The transfer is regarded as coming from each of the paragraphs in order; that is £5,000 from Para (a) and a taxable remittance consisting of £5,000 from Para (f).

Contents of the mixed fund as of the 3 October

Note 3 - Immediately before the remittance on 3 October the mixed fund contained:

Para (a) Employment Income £180,000
     
Para (f) Earnings subject to a foreign tax £50,000
Para (g) RFI £350,000
Para (i) Income or capital not within another paragraph £32

The transfer is regarded as coming from the ‘earliest paragraph’, that is Para (a), so the £5,000 is UK employment income.

Immediately before the offshore transfer on the 15 October

Note 4 - The transfer of £350,000 to a new Swiss bank account is an offshore transfer. Immediately before the offshore transfer on 15 October the IoM bank account (mixed fund) is regarded as containing:

Para (a) Employment Income £175,000
     
Para (f) Earnings subject to a foreign tax £50,000
Para (g) RFI £350,000
Para (i) Income or capital not within another paragraph £32,000
    £607,000

The offshore transfer consists of an appropriate proportion of each kind of income, gain or capital, within the mixed fund, that is:

Para (a) Employment Income £100,906
     
Para (f) Earnings subject to a foreign tax £28,830
Para (g) RFI £201,812
Para (i) Income or capital not within another paragraph £18,452

The Swiss bank account is another ‘mixed fund’, containing the income, gains and capital of the transferred amount. Assuming nothing else is added or taken away from the Swiss account in the interim, if in a couple of years time Ahmid decides to remit £120,000 to the UK from his Swiss bank account, the same ordering rules will apply to the Swiss fund, so the remittance is regarded as consisting of £100,906 from Para (a) and £19,094 from Para (f).