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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.
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.