UK News: Remittance basis users - cleansing, use it or lose it by 5 April 2019

Non-domiciled individuals must act soon in order to avoid a missed opportunity regarding mixed funds and cleansing. Learn about upcoming changes to ensure you don’t miss out.

Remittance basis users: cleansing, use it or lose it by 5 April 2019

When the government announced in the 2015 autumn budget that they were consulting on changes to the remittance basis, few UKRNDs – UK resident but non-domiciled individuals – would have anticipated how these changes would impact them.

However, on 5 April 2019 a very significant provision that was introduced with the 2017 changes will end: those who previously claimed the remittance basis of taxation will no longer be able to cleanse their mixed funds.

 

Cleansing: what is it?

The term ‘cleansing’ doesn’t truly encapsulate what the process entails. In essence, when a UKRND wishes to use this provision, they are electing to separate a sum of money (which would be considered a mixed fund deposited in a bank account or similar) into its constituent parts: income, gains and clean capital.

The reason this provision is so valuable is that by cleansing mixed funds, a UKRND is giving themselves control over what they remit in the event that they require funds in the UK. Ordinarily, if a UKRND wished to remit funds to the UK, they would not be able to choose which part of a mixed fund to remit – there are very strict ordering rules that need to be considered.

This is best illustrated below:

What is clean capital?

Clean capital can be broadly defined as:

  • Pre-arrival income and gains
  • Funds that you have been gifted
  • Funds that have been inherited
  • Funds that have incurred UK tax

You can cleanse mixed funds if you:

  • Are non-UK domiciled
  • Can identify the make-up of your mixed funds
  • Have been taxed on the remittance basis in any year from 6 April 2008 to 5 April 2017
  • Meet the conditions in section 809B of the Income Tax Act 2007

You can’t cleanse mixed funds if you were born in the UK with a UK domicile of origin.

Next steps

Due to the complexities of account cleansing, it’s vital that eligible UKRNDs to start this process as soon as possible. Professional advice from a tax advisor is essential to making sure your account cleansing is properly completed, to avoid getting it wrong and paying unnecessary tax as a result.

Please note that HSBC does not provide tax advice.

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