Firstly, let’s consider what a mixed fund is and why it might be a problem. UK resident, non-domiciled individuals (RNDs) are able to be taxed on the ‘remittance basis’ meaning that income and capital gains generated overseas are only subject to UK tax if they are remitted to the UK.
Where income, capital gains, and clean capital are effectively segregated each remittance can be identified and treated accordingly. However, where these different types of funds have not been segregated into different accounts and have been mixed into one pot then remittances will first be deemed as income, then capital gains and finally clean capital; being the most tax expensive to the least.
No matter how diligent an individual is, funds inevitably become mixed over time. For example, it is impossible to segregate capital gains from the original investment.; or fund managers can mistakenly forget to transfer the interest earned on clean capital into a separate income account.
For a limited time, RNDs are able to bring some funds to the UK tax-efficiently.
The separation of income, capital gains and clean capital means, most notably that, ‘clean capital’ can be brought to the UK tax-free; whilst capital gains can also be brought to the UK at the lower tax rates of 10% – 20%.
It would also allow income that has already been subject to tax overseas to be identified meaning that the foreign tax credit can be used to offset any further UK tax due.
We will be able to undertake a tracing exercise that will identify the total amount of income, capital gains and clean capital currently sat within an account.
An amount equivalent to income and capital gains can each be transferred into new accounts and will represent that nature of income going forwards.
This is a limited time opportunity offered by HMRC and all calculations and bank transfers must be completed by 5th April 2019.
After this date it will not be possible to unmix funds and it is unlikely that the opportunity will ever arise again so urgent action is required.
How Can Wilson Wright Help
We can review the mixed fund and calculate the transfers needed to cleanse the account. We would then work with your bank to provide them with the details of the correct transfers to make.
If you believe that this opportunity might be available to you, or you would like further advice on this matter, then please do contact us as a matter of priority.