HMRC Guidance – Deemed Domicile Rules and Cleansing Mixed Funds


From 6 April 2017 those who are resident in the UK for 15 of the prior 20 years are deemed UK domiciled for the purposes of income tax, capital gains tax and inheritance tax. The effect of these deemed domicile rules is to tax long term non-domiciled individuals on their worldwide income and gains as they arise, so there is no ability for them to claim the remittance basis of taxation.

In order to help long term residents move from the remittance basis to worldwide taxation, two provisions were introduced by Finance Act 2017 namely; the ability to rebase certain foreign assets to the 5 April 2017 value (see our earlier bulletin) and the ability for all remittance basis users to cleanse mixed funds in the two year period to 5 April 2019.

Broadly, a mixed fund is a fund of money or other property which contains more than 1 type of income or capital (including ‘foreign chargeable gains’) and/or income or capital from more than 1 tax year.

However, it is important to note that this opportunity only extends to cash, therefore if an individual has purchased an asset with mixed funds, the asset would need to be sold.

The ‘cleansing’ of mixed funds enables a bank account containing untaxed unremitted income, capital gains and clean non-taxable capital to be segregated through moving the constituent parts to separate accounts. It will then be possible to remit funds from the new accounts to the UK in the most favorable manner.

In practice these rules are extremely complicated and come with a number of conditions. Broadly, the individual has to be a non UK domiciled, be able to identify the make-up of their mixed funds and have been a remittance basis user under the terms of the legislation (s809B, s809D, S809E of the Income Tax Act 2007) prior to April 2017. In addition, for transfers made before April 2008 these rules appear to have an added layer of complexity. In any event given the complex area of taxation individuals falling into this category are advised to seek professional advice from a specialist in this area prior to taking any action.

Note it is not possible to ‘cleanse’ mixed funds if the client was born in the UK and thus has a UK domicile of origin.



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