RDRM35470 - Remittance Basis: Amounts Remitted: Offshore Transfers: Composition of a mixed fund - debts - example
Frankie’s bank account in Jersey
Each kind of income within the mixed fund
The account now contains £77,000
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
| Date | Type of income | 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) | £10,000 | - | £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 | - | £5,000 | £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:
| Type of income | Amount |
|---|---|
| ‘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:
| Type of income | Amount |
|---|---|
| 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:
| Type of income | Amount |
|---|---|
| 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:
| Type of income | Amount |
|---|---|
| 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:
| Type of income | Amount |
|---|---|
| Clean capital | £60,405 |
| UK salary | £16,880 |
| Relevant foreign earnings | £16,880 |
| Relevant foreign income | £12,835 |
| - | £107,000 |
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:
| Type of income | Amount |
|---|---|
| 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:
| Type of income | Amount |
|---|---|
| Clean capital | £11,049 |
| Relevant foreign earnings | £1,603 |
| Relevant foreign income | £2,348 |
| - | £15,000 |
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
| Type of income | Amount |
|---|---|
| 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:
| Type of income | Amount |
|---|---|
| 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 |