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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Risk warning

The value of investments can fall and you might get back less than you invest.

Important information

This material is issued by HSBC UK Bank plc which is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority in the UK. It has been issued for your information purposes only.

Please note that HSBC does not provide tax or legal advice and clients should seek professional advice from their tax advisor. Any reference to tax is based on our knowledge of the current and proposed tax regime and is subject to change.

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