Changes to the UK tax system introduced by the HMRC on 6th April 2017 mean that if you are a non-dom that has previously taken advantage of the remittance basis of taxation, you have until April 2019 to be able to separate your funds to ensure favourable tax rates.
The process of mixed fund cleansing enables non-doms who have previously used the remittance basis of taxation to transfer offshore funds into the UK in a tax efficient manner
This article has been created as a guide for non-doms using the remittance basis in 2016/17 or earlier tax years and believe they may benefit from cleansing mixed funds in an offshore bank account. This article should not be used in isolation and must not be used to make any decisions – you must always seek professional advice from a qualified tax consultant before making any decisions.
What is a mixed fund?
A mixed fund is classed in the context of mixed fund cleansing is an offshore bank account which contains substantial capital earned from multiple sources, including the UK. For example, a mixed fund might be made up of UK taxed employment income, inheritance from non-UK source, capital gains on assets from outside the UK, non-UK dividend income and capital assets (such as paintings or property).
Two key elements of cleansing mixed funds are that:
1) You can only cleanse money which means that any paintings, property or other assets would have to be sold to realise their cash value;
2) Any funds held in the bank account must be identifiable. If the sources of any funds held in the mixed account cannot be identified, they can only cleanse those funds that can be.
Who qualifies for mixed funds cleansing?
Firstly, any UK national born in the UK and that has a UK domicile is not eligible for mixed funds cleansing. Only people that are classed as non-dom and claimed the remittance basis between 6th April 2008 and 5th April 2017 are eligible.
The process of cleansing mixed funds
If a non-dom individual has an offshore bank account that contains:
- Identification of funds inside one or more bank accounts which may be eligible for mixed funds cleansing
- Take action to segregate funds that are eligible for mixed funds cleansing
- Nominate funds for transfer
- Transfer eligible funds from the mixed funds account to another offshore account
- Ensure records are kept for all identified and nominated funds
An example of mixed funds cleansing and potential savings
Tax consultants from our network have been assisting non-doms cleanse mixed funds and have developed an efficient mixed funds cleansing service as a result.
One such example was an individual who qualified for mixed funds cleansing and traceable transactions inside a portfolio worth £1m. The makeup of the portfolio was as follows:
- Pre-arrival clean capital invested: £600k
- UK taxed employment income: £100k
- Non-UK Dividend income: £100k
- Unrealised offshore income gains: £200k
Using their mixed funds cleansing service, the consultants were able to segregate £700k of the £1m and enable the individual to remit £700k into the UK without triggering any UK tax charges.
In this case, if the remaining £300k had not be segregated and had been remitted into the UK, the tax bill as a result would have been in the region of £128k.
How much does mixed funds cleansing cost?
Cleansing mixed funds requires specialist tax skills available through qualified tax consultants. In terms of cleansing mixed funds, fee quotations will be provided that will be based on a number of factors, including the amount of funds required to be cleansed, the length of time the individual has been using the remittance basis and the number of transactions that will be undertaken. As with most professional services, the more hours and transactions that are required to cleanse the mixed funds, the higher the fees are likely to be.
However, any fees will be significantly offset by potential tax savings, although as part of any mixed funds cleansing service, this comparison will be calculated early in the process, so a cost/benefit analysis can be used to make any decisions about whether to proceed or not.
Request a free initial consultation and fee quote
At Expatriate Services, we work with highly experienced tax consultants who have assisted high net-worth non-doms cleanse mixed funds, enabling them to legally avoid significant tax bills that may have otherwise occurred due to the changes to the non-dom tax rules.
If you are a non-dom and believe that you may qualify for mixed funds cleansing, or would like a second opinion, enter your details using the form and we will arrange for a consultant to contact you to set up a free consultation to discuss your options.
During this consultation, information will be provided that will enable a fee quote to be created as well as guidance on whether you are eligible for mixed funds cleansing.