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Non-UK domiciled individuals and HMRC cleansing relief

Non-UK domiciled individuals and HMRC cleansing relief

HMRC cleansing relief explained

Tax changes introduced in April 2017 have meant that individuals who are resident in the UK but considered non-UK domiciled for tax purposes have until April 2019 to take advantage of the ‘cleansing relief’ available.

This cleansing relief is accessible to any non-UK domicile who has been taxed on the remittance basis from 6 April 2008. It enables them to remit some of their funds – such as ‘clean capital’ – to the UK before April 2019 with no tax repercussions.

Cleansing mixed funds

Benefitting from this short-term favourable treatment requires eligible non-doms to cleanse their mixed funds – i.e. those funds that comprise a mixture of income, capital gains and clean capital, as well as overseas funds.

Cleansing these mixed funds requires the identification of their constituent parts. Each element – the income, capital gains and clean capital – is then transferred into its own offshore bank account and the funds named accordingly. This will, of course, necessitate multiple bank accounts, which must be set up and receive the transfers before 5 April 2019.

HMRC has supplied a checklist for cleansing mixed fund accounts. Non-UK domiciled individuals must be able to:

  • nominate the transfer
  • make the transfer between 6 April 2017 and 5 April 2019
  • only cleanse money
  • transfer from one overseas account to another
  • specify the amount for each category
  • not have nominated a transfer from account A to account B before
  • be a qualifying individual at the time of transfer
  • make sure the transfer is for income, gains and capital, can be the whole or part of what is in the account, and doesn’t exceed the amounts in the account immediately before the transfer
  • be able to identify the source of the funds

Unidentifiable sources

It may be that it’s not possible to identify the sources of all the amounts in a mixed fund. In such cases, only those amounts with identifiable sources can be cleansed. There is also no need to empty the original mixed fund account entirely. However, once a nominated transfer has been made from that account, it cannot be nominated back to it.

Joint accounts

Cleansing is possible on joint accounts even if only one person qualifies. The qualifying individual can cleanse their share of the account by identifying which funds are theirs and whether they are income, capital or chargeable gains.

Meeting the cleansing requirements

Meeting the requirements for the cleansing relief could be challenging for many individuals due to difficulties with identifying the constituent elements of a mixed fund. Incomplete records or a series of transactions over time will hinder cleansing efforts, with things getting trickier the longer the account has been open.

In addition, overstating one of the constituent elements in the mixed fund will invalidate the entire transfer. Those looking to benefit from the relief should therefore engage the services of a tax accountant to ensure the figures are correct. Firms such as Charter Tax, a tax accountant in Tunbridge Wells, can help with this.

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