Beta This part of GOV.UK is being rebuilt – find out what this means

HMRC internal manual

Residence, Domicile and Remittance Basis Manual

From
HM Revenue & Customs
Updated
, see all updates

Remittance Basis: Amounts Remitted: Offshore Transfers: Composition of a mixed fund - debts - example

Frankie, a remittance basis user, has a bank account in Jersey into which is paid both UK source (taxed) income and foreign income and gains. Frankie makes transfers from the Jersey account to his UK account to meet his UK living expenses.

On 28 May, Frankie acquires a loan from his Jersey bank that he uses to purchase an asset in Jersey for £200,000 - Note 3. He repays the loan from this account.

Frankie’s bank account in Jersey

    Credit Debit Balance Category (S809Q(4)) Refer to Note
             
Opening balance at 6 April Clean capital from inheritance £80,000   £80,000 i  
15 April Relevant foreign income offshore dividend (untaxed)     £90,000 d  
30 April UK salary £10,000   £100,000 a  
30 April Relevant foreign income (Jersey bank interest) £5,000   £105,000 d  
30 April Overseas salary (not subject to foreign tax) £5,000   £110,000 b  
3 May Transfer to UK account   £5000 £105,000   1
15 May Relevant foreign income £2,000   £107,000 d  
31 May UK salary £10,000   £117,000 a  
31 May Overseas salary £5,000   £122,000 b  
3 June Transfer to UK account   £5,000 £117,000   2
28 June Monthly payment - bank loan   £15,000 £102,000   3 and 4
30 June UK salary £10,000   £112,000 a  
30 June Overseas salary £5,000   £117,000 b  
3 July Transfer to UK account   £5,000 £112,000   5
28 July Monthly payment - bank loan   £15,000 £97,000   6
31 July UK salary £10,000   £107,000 a  
31 July Overseas salary £5,000   £109,000 b  
3 August Transfer to UK account   £5,000 £102,000   7
15 August Cheque - ZZZ Cars Ltd   £25,000 £77,000   8
28 August Monthly payment - bank loan   £15,000 £62,000   9
31 August Overseas salary £5,000   £67,000 b  
31 August UK salary £10,000   £72,000 a  
3 Sept Transfer to UK account   £5,000 £67,000   10

Note 1 - Using the ordering rules at ITA07/s809Q, the remittance to the UK on 3 May is matched against the UK salary from that tax year credited to the account on 30 April, as this is the ‘earliest paragraph’ of income or gains within the mixed fund.

Note 2 - The remittance on 3 June is also matched against the UK salary from that tax year credited to the account before that date.

Note 3 - The £200,000 used to pay for the assets is borrowed capital and is not in itself a remittance or an offshore transfer. However, subsequent payments of interest and capital used to repay the loan are offshore transfers.

Note 4 - At the time immediately before the first repayment of the debt occurs on 28 June, the ‘mixed fund’ is composed as follows:

‘Clean capital’ £80,000
   
UK salary £10,000 (refer to Note 4a)
Relevant foreign earnings £10,000
Relevant foreign income £17,000
  £117,000

Each kind of income within the mixed fund

The repayment of the monthly bank loan of £15,000 is an offshore transfer, consisting of an appropriate proportion of each kind of income within the mixed fund, that is:

Clean capital £10,256
   
UK salary £1,282
Relevant foreign earnings £1,282
Relevant foreign income £2,180
  £15,000

The property acquired by Frankie using the loan is now regarded as containing this income.

Note 4(a) - Although £20,000 of Frankie’s UK salary has been credited to the account, £10,000 has already been remitted prior to 28 June (refer to Notes 1 and 2).

Note 5 - The next remittance on 3 July is again £5,000 that is matched against the UK salary credited to the account before that date.

Note 6 - At the time immediately before the repayment on 28 July, the ‘mixed fund’ is composed as follows:

Clean capital £69,744
   
UK salary £13,718
Relevant foreign earnings £13,718
Relevant foreign income £14,820
  £112,000

The repayment of the monthly bank loan of £15,000 is an offshore transfer, consisting of an appropriate proportion of each kind of income within the mixed fund, that is:

Clean capital £9,339
   
UK salary £1,838
Relevant foreign earnings £1,838
Relevant foreign income £1,985
  £15,000

The property acquired by Frankie is now regarded as containing this income.

Note 7 - A further £5,000 remittance on 3 August is again matched against UK salary.

Note 8 - The payment of £25,000 to ZZZ Cars is to buy a car and is a taxable remittance. Immediately before the transfer the mixed fund is composed as follows:

Clean capital £60405
   
UK salary £16880
Relevant foreign earnings £16880
Relevant foreign income £12835
  £107000

This £25,000 remittance is matched firstly against UK salary (£16,880), then against relevant foreign earnings (£8,120).

Note 9 - At the time immediately before the repayment on 28 August, the ‘mixed fund’ is composed as follows:

Clean capital £60,405
   
UK salary £nil
Relevant foreign earnings £8,760
Relevant foreign income £12,835
  £82,000

The repayment of the monthly bank loan of £15,000 is an offshore transfer, consisting of an appropriate proportion of each kind of income within the mixed fund, that is:

Clean capital £11049
   
Relevant foreign earnings £1603
Relevant foreign income £2348
  £15000

Note 10 - The fifth remittance on 3 September is again £5,000 that is matched against the UK salary from that tax year credited to the account before that date.

The account now contains £77,000

Clean capital £49,356
   
UK salary £5,000
Relevant foreign earnings £12,157
Relevant Foreign Income £10,487

For the purposes of this example, assume that on 8 September Frankie wins the Jersey local lottery (‘clean capital’) and uses his winnings to pay off the outstanding loan.

Three years later, Frankie brings the property acquired with the loan to the UK. The property is a mixed fund, and it is regarded as containing the income and capital used to pay off the loan, that is:

UK salary £3,120
   
Relevant foreign earnings £4,723
Relevant foreign income £6,513
Clean capital £185,644
Frankie has remitted foreign income of £11,236