Detailed guide: End-Use procedure (CIP4)

Introduction

The End-Use procedure enables goods to be imported into the EU for a prescribed use at a reduced or free rate of duty.

Changes

The Commission have introduced End-Use measures for flint maize (commodity code 1005 9000 20) with effect from 1 February 2018.

The measures will reduce the import duties by EUR 24 per tonne on flint maize. To benefit from this:

  • an End-Use relief authorisation must be held or, where applicable, authorisation by declaration used to declare the goods to End-Use relief
  • the flint maize must be processed into a product of CN code 1904 10 10, 1103 13 or 1104 23 within six months of entry for free circulation

The importer must provide HM Revenue and Customs with security, except where the declaration is accompanied by a certificate of conformity issued by Argentine Servicio National de Sanidad y Calidad Agroalimentaria (Sensa).

The Trade Tariff will be updated in due course.

More information on End-Use relief, and how to apply for an End-Use relief authorisation can be found in Notice 3001.

Contacts

Further information can be obtained by contacting the general enquiries team for imports and exports.

Issued on the 30 January 2018 by Customer Strategy and Tax Design, Customs Directorate, HMRC.

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Your rights and obligations

Read Your Charter to find out what you can expect from HMRC and what we expect from you.

Source: HMRC

News story: Getting ready for the Customs Declaration Service

HM Revenue and Customs (HMRC) will begin a phased launch of the Customs Declaration Service (CDS) in August 2018. CDS will replace the existing Customs Handling of Import and Export Freight (CHIEF) system, with all declarations taking place on CDS from early 2019.

CHIEF currently processes declarations to facilitate the international movement of goods between the UK and non-EU countries. CHIEF will continue to run for a time to aid the transition to CDS.

Why CDS is replacing CHIEF

CHIEF is one of the world’s largest and most sophisticated electronic services for managing customs declaration processes, but it’s nearly 25 years old and can’t be easily adapted to new requirements.

The decision to replace CHIEF with CDS was made before the EU referendum, however CDS will be scaled to handle any potential increases in the volume of declarations that may result from the UK’s exit from the EU.

How this will affect importers and exporters

If a trader imports or exports goods outside the EU, they or their agent will be currently using CHIEF to:

  • process declarations for goods entering and leaving the UK or EU through ports and airports
  • calculate and pay the correct duty and taxes
  • complete customs information electronically

They will still be able to do these things on CDS, but there will be differences:

  • they will need to sign into CDS on GOV.UK through a Government Gateway account
  • CDS will offer several new and existing services in one place – for example, traders will be able to view previous import and export data on pre-defined reports, check the tariff, apply for new authorisations and simplifications, and check their duty deferment statement
  • online help will include self-service tools, guides and checklists

Some additional information will be required for declarations in order to align with the World Customs Organisation Kyoto Convention, currently being implemented in the UK through the Union Customs Code (UCC):

  • an audit trail of previous document IDs
  • additional party types, such as the buyer and seller
  • possible additional commercial references or tracking numbers
  • levelling – change between ‘Header’ and ‘Item’ for some data items

To align UK customs data with international standards, there will also be changes to:

  • location of goods identification (based on UNLOCODE)
  • the warehouse type code list
  • item tax lines, including method of payment codes
  • unit of quantity codes (ISO)
  • the way customs procedures are quoted
  • the number of items on a declaration – CDS will allow a maximum of 999 items on a customs declaration instead of the current 99 items on CHIEF

An updated tariff manual will be available in April 2018.

Alerting importers and exporters about using CDS

HMRC is currently building and testing CDS with industry, software providers and Community System Providers (CSPs). CSPs operate computerised inventory systems that control the physical movement of import and export freight at UK ports and airports.

CDS will be phased in between August and early 2019, with CHIEF continuing to run during this time to aid the transition. Importers, exporters or their agents will be informed by their software provider when they need to provide the additional information in order to start making declarations on CDS.

To keep informed about CDS, please send your name and email address to communications.cds@hmrc.gsi.gov.uk to register for email updates.

The updates will provide regular information on CDS and any preparations you may need to make ahead of CDS going live.

There will also be regular updates about CDS on GOV.UK and through trade associations.

Source: HMRC

Detailed guide: Business Investment Relief

The Business Investment Relief (BIR) legislation introduced on 6 April 2012 has been updated. These changes came into force on 6 April 2017.

Qualifying investments

A qualifying investment can now be made by acquiring existing shares in a target company.

New category of qualifying target company

Eligible hybrid company has been added to the target company list.

An eligible hybrid company is a private limited company which:

  • isn’t an eligible trading or stakeholder company
  • carries on one or more commercial trades or may do so within the next 5 years
  • holds one or more investments in eligible trading companies or may do so within the next 5 years
  • carries on commercial trades and makes investments in eligible trading companies for all, or substantially all, of what it does

Non-operational meaning

For eligible hybrid companies, non-operational means:

  • it’s not trading, and it holds no investments in any eligible trading companies, or
  • none of the eligible trading companies it holds investments in are trading

Commercial trade

A new requirement that trade should be commercial, that is, conducted on a commercial basis with a view to making profits. Whether carrying on a commercial trade is all or substantially all of a trading company’s activities will depend on a consideration of all the relevant facts.

The phrase ‘all or substantially all’ isn’t in the legislation, but if the relevant trade accounts for at least 80% of the companies total activities, it will generally be regarded as meeting this requirement.

Further guidance on what is a trade can be found in the Business Income Manual at BIM20050.

Partnerships

A company which is a partner in a partnership won’t be regarded as carrying on a trade if the trade is carried on by the partnership.

As the commercial trade test conditions won’t be met the company won’t qualify for BIR.

To qualify for BIR the company must:

  • have commercial trade in its own right separate from the partnership
  • satisfy the other qualifying conditions

Potentially chargeable events

When a qualifying investment is made, situations might arise which are treated as a potentially chargeable event.

A potentially chargeable event is when:

  • the relevant person who made the investment disposes of all or part of their investment
  • the company in which the investment was made ceases to be an eligible:
    • trading company
    • stakeholder company
    • holding company
    • hybrid company
  • the 5 year start up rule is breached
  • the extraction of value rule is breached

When a potentially chargeable event occurs the investor has time limits to take the appropriate mitigation steps. These time limits are called grace periods.

Grace periods

There are 4 grace periods. Numbers 1 to 3 are unchanged. Number 4 has been updated from 6 April 2017.

1. Disposal of all or part of the holding

45 days to take the disposal proceeds offshore or reinvest them, beginning on the day on which the disposal proceeds become available to the relevant person

The disposal proceeds up to amount ‘X’, must be taken offshore or reinvested to successfully carry out the mitigation steps.

2. Extraction of value

90 days to dispose of the holding, beginning on the day on which value is received.

45 days to take the disposal proceeds offshore or reinvest them, beginning on the day on which the disposal proceeds become available to the relevant person.

The disposal proceeds up to amount ‘X’, must be taken offshore or reinvested to successfully carry out the mitigation steps.

3. Ceasing to be an eligible company

90 days to dispose of the holding, beginning on the day on which a relevant person becomes aware, or ought reasonably to have been aware, of the potentially chargeable event.

45 days to take the disposal proceeds offshore or reinvest them, beginning on the day on which the disposal proceeds become available to the relevant person.

The disposal proceeds up to amount ‘X’, must be taken offshore or reinvested to successfully carry out the mitigation steps.

4. Breach of the 5 year start up rule

2 years to dispose of the holding and to take the disposal proceeds offshore or reinvest them.

The 2 years begin on the day the relevant person becomes aware, or ought reasonably to have been aware, of the potentially chargeable event.

The disposal proceeds up to amount ‘X’, must be taken offshore or reinvested to successfully carry out the mitigation steps.

If payments are received in instalments, each payment is considered to be a separate disposal and each will trigger the start of a grace period.

Amount X is calculated as:

  • the sum originally invested, less
  • any part of that sum that has previously been
    • treated as remitted to the UK
    • sent offshore or invested in another qualifying investment
    • used to make a tax deposit on a previous part disposal

If the disposal proceeds exceed amount X, the individual has only to take offshore or reinvest amount X.

The extraction of value rule

This rule is breached if the relevant person receives value from a company that is directly or indirectly linked to the investment they make. An extraction of value can be either money or money’s worth received by or for the benefit of any relevant person.

If a breach occurs, the taxpayer will be treated as having made a taxable remittance of all of their foreign income or gains invested unless they take the appropriate mitigation steps.

Any payment received for a disposal which is a potentially chargeable event isn’t treated as a breach of the extraction of value rules where the value received by the relevant person is:

  • subject to Income Tax or Corporation Tax or would be if the relevant person were liable to such tax
  • paid or provided to the relevant person in the ordinary course of business and on arm’s length terms

More information is available at RDRM34440.

Changes from 6 April 2017

From 6 April 2017 the extraction of value rule will only be breached if the relevant person receives value in circumstances that are directly or indirectly attributable to their investment and they fail to take the appropriate mitigation steps.

An extraction of value event with the same facts could have different outcomes if it occurred before or after 6 April 2017.

Disposal of all or part of a holding

If an investor disposes of some or all of their holdings in an eligible hybrid company, as well as any of the 3 existing eligible company categories they have to take the appropriate mitigation steps so that the foreign income or gains that was originally invested isn’t treated as remitted to the UK.

Two year start up rule

Before 6 April 2017 if you invested in a target company that hadn’t started trading, to meet Condition A for BIR the company:

  • must start trading within 2 years of the investment being made
  • must not become non-operational after the end of the 2 year period

From 6 April 2017 the start-up period has been extended to 5 years for both trading purposes and if a company becomes non-operational. The investment must be made on or after 6 April 2017.

For investments made before 6 April 2017 the 2 year start-up condition will continue to apply.

Source: HMRC

Detailed guide: Remittance basis changes

Before 6 April 2017 you could claim the remittance basis if:

  • you were UK resident
  • your domicile of origin was overseas and you hadn’t acquired a UK domicile of choice
  • you were born with a UK domicile of origin but had acquired a domicile of choice (or dependency) overseas

Changes from 6 April 2017

From 6 April 2017 you’ll be taxed on the arising basis on your worldwide income and gains if you:

  • were born in the UK and have a UK domicile of origin
  • were resident in the UK for at least 15 of the 20 tax years immediately before the relevant tax year

Example

Jamal, who was born in the UK and had a UK domicile of origin, moved to New Zealand aged 20, staying there for many years and acquiring a domicile of choice there.

He then came back to the UK to work on a 2 year secondment for his employer in New Zealand, becoming resident here. He intends to return home to New Zealand after his secondment.

If he had returned to the UK before 6 April 2017 Jamal would be treated as non UK domiciled and would be able to use the remittance basis.

If Jamal returns to the UK after 6 April 2017 he will be treated as UK domiciled from the date he returns to the UK. He will be unable to use the remittance basis and will be taxed on the arising basis on his worldwide income and gains.

The remittance basis charge

From 6 April 2017 the remittance basis charge changed to 2 levels of charge:

  • £30,000 for non-domiciled individuals who have been resident in the UK for at least 7 of the previous 9 tax years immediately before the relevant tax year
  • £60,000 for non-domiciled individuals who have been resident in the UK for at least 12 of the previous 14 tax years immediately before the relevant tax year

The £90,000 charge no longer applies from 6 April 2017, because of the deemed domicile changes brought in from that date.

The £90,000 charge still applies for the years 2015 to 2016 and 2016 to 2017 if you’re UK resident in at least 17 of the preceding 20 UK tax years for either year.

Example

Blanche, a non UK domiciled individual, has been resident in the UK since tax year 1999 to 2000 and has always claimed the remittance basis.

From 6 April 2008 she paid the £30,000 RBC, this changed to £50,000 from 6 April 2012 to 5 April 2015 (when the higher charge was introduced).

From 6 April 2015 Blanche paid £60,000 RBC and from 6 April 2016 she paid the £90,000 RBC. The final year Blanche will pay the RBC is 2016 to 2017, as she will be treated as deemed domiciled from 6 April 2017 – Blanche has been in the UK for more than 15 of the last 20 tax years, so she meets Condition B.

Remittances of foreign income or gains

If you used the remittance basis before 6 April 2017 but after that date you’re deemed domiciled for UK tax purposes you must continue to tell HM Revenue and Customs (HMRC) when you remit any foreign income or gains to the UK that arose in a year when you claimed the remittance basis.

Any remittances made in a year when you’re deemed domicile in the UK, from funds that arose in an earlier year when you claimed the remittance basis are still taxable in the year they’re remitted to the UK.

Example

Nikki, due to the number of years she has lived in the UK, is deemed domiciled from 6 April 2017 under Condition B. Prior to this she claimed the remittance basis for a number of years.

Nikki is offered the chance to buy land adjoining her UK country home and decides to take advantage of this limited offer. She remits the proceeds of a foreign gain which arose in tax year 2014 to 2015, a year for which she claimed the remittance basis.

She will have to declare this gain on her Self-Assessment tax return for the year in which she remits it to the UK.

Less than £2,000 unremitted foreign income or gains

The new deemed domicile legislation at section 835BA (chapter 2 of part 14 of ITA 2007) doesn’t apply if you’ve used the remittance basis under the provisions of section 809D ITA 2007.

However, you must ensure that unremitted foreign income and gains are under £2,000
for the relevant tax year before deciding if you’re not deemed domicile in the UK for Income Tax and Capital Gains Tax.

Example

Juan has used the remittance basis under section 809D for a number of years. From 6 April 2017 he has been in the UK for more than 15 of the last 20 tax years and so becomes deemed domiciled in the UK, having satisfied Condition B.

However, for 2017 to 2018 , as Juan still meets the conditions for section 809D he can continue to use the remittance basis for as long as he meets those conditions.

On 15 September 2019 Juan sells his Caribbean holiday home, placing the proceeds in one of his foreign bank accounts.

When completing his 2019 to 2020 UK tax return Juan won’t be able to use the remittance basis under section 809D because his unremitted foreign income and gains are more than £1,999.

Juan will be taxed on the arising basis for the year and, even though he hasn’t remitted any of the sale proceeds, he must declare the foreign gain on his Self-Assessment return.

Until his unremitted foreign income and gains reduce to less than £2,000 in a specific tax year Juan won’t be able to use the remittance basis. He will be treated as deemed domiciled and taxed on his worldwide income and chargeable gains.

Allowances

If you become deemed domiciled and subject to UK tax on your foreign income or gains you may be able to claim the dividend and personal savings allowances.

Source: HMRC

Detailed guide: Check a pension scheme member’s residency status for relief at source

As a pension scheme administrator using relief at source you’ll need to know the residency status of each of your scheme members. You can then give them the right tax relief and reclaim it from HM Revenue and Customs (HMRC).

You must use the residency status information provided by HMRC. You can find this in your
annual notification of residency status report for existing members. It can take up to 2 tax years for a new member to be included on your annual report.

The annual report uses the information you supplied on your annual return of individual information. If you didn’t submit the return for the previous tax year, you won’t have an annual report for this tax year.

If a member’s status doesn’t appear on your annual report, before you apply relief at source, you must use the ‘rest of UK’ residency status for them. This is also the case if you don’t have an annual report.

You must apply the same tax rate for a member for the whole of the tax year, even if their residency status changes.

If your member has received the wrong amount of tax relief, HMRC will deal directly with them to correct it.

Find the residency status of existing members

You should use your annual notification of residency status report, which HMRC will make available in January each year. You’ll need to register for the Secure Data Exchange Service (SDES) to get this.

As a scheme administrator, you should have registered for SDES or been transferred to it automatically if you were already using secure electronic transfer, known as ‘SET’.

HMRC will send you an email each year when your annual notification of residency status report is available in SDES for you to download. When you access SDES, make sure the email address for this notification is correct.

If you successfully submitted more than one annual return of individual information, you’ll receive a report for each annual return you submitted.

You need to sign in to SDES and download the report within 144 hours (6 days) from when HMRC make the file available to you to download.

What your annual report will tell you

The report will give you a residency status for each of your scheme members which you included in your annual return. The ‘Residency tax status’ column will show:

  • ‘S’ – Scottish residency status
  • a blank field – ‘rest of UK’ residency status (resident in England, Northern Ireland or Wales)
  • ‘U’ – the member hasn’t been matched to a National Insurance number

If you included an incorrect National Insurance number for a member in your annual return, the report may provide the correct one in an extra field. Use this to update your records.

You need to tell HMRC by emailing MDTSSETCustomerManagement@hmrc.gsi.gov.uk if you:

  • can’t open your report because the file is corrupt
  • haven’t received your report by the end of January and you haven’t been contacted by HMRC
  • didn’t download the report in time

In your email you must include your scheme administration reference number which HMRC allocated to you for monthly and annual tax relief at source repayments. It’s a letter followed by 4 numbers, a ‘/’ and another 2 numbers. However, you must replace the letter for a ‘P’, so A1234/01 would become P1234/01.

Members without a residency status result

Where a member doesn’t have a residency status of Scotland or ‘rest of UK’ in the annual report, you’ll need to check you’ve got the correct details.

A residency status also won’t be shown for members who have died.

If you think all the information you have is correct, your scheme member will need to contact National Insurance general enquiries to check their details.

You shouldn’t use your annual report’s status for a member if you entered their details incorrectly on your annual return of individual information. You’ll need to correct this on your next annual return.

As mentioned previously, for any members without a residency status for relief at source by the time you apply it to their contributions, you must treat them as having a ‘rest of UK’ status.

Members not covered

If your member:

Find the residency status of new members

A service will be available in the near future which you’ll be able to use in order to look up the residency status of any member not on the annual report.

Use the ‘rest of UK’ residency status for new members until the look up service is available.

Source: HMRC

Detailed guide: Cleansing mixed funds

A mixed fund is an overseas fund of money, which contains:

  • more than one type of income, gains and capital, or
  • income, gains or capital from more than one tax year

You can cleanse mixed funds by transferring money from one offshore account to another 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
  • meet the conditions in section 809D of the Income Tax Act 2007 (your unremitted foreign income and gains are less than £2,000)
  • meet the conditions in section 809E of the Income Tax Act 2007 (without making a claim, other cases)

You can’t cleanse mixed funds if you were born in the UK with a UK domicile of origin.

Cleansing conditions from April 2017

From 6 April 2017 to cleanse your mixed fund accounts you must:

  • 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

If you can’t identify all the sources of the amounts in each of your mixed fund accounts, you’ll only be able to apply the cleansing provisions to the amounts you can identify.

You don’t have to cleanse all overseas mixed fund accounts at the same time, as long as each account is cleansed within the 2 year window, ending 5 April 2019.

You also don’t need to completely empty the original mixed fund account, but once a nominated transfer from an account has happened it can’t be nominated again into that same account.

Nominations

You must nominate all transfers of income, gains and capital from the mixed fund you want to cleanse and:

  • keep records of all nominations
  • make the nomination between 6 April 2017 to 5 April 2019

Any nominations made outside this 2 year window won’t be valid for cleansing purposes.

The normal mixed fund rules still apply (sections 809Q and 809R Income Tax Act 2007), to transfers in or out of an uncleansed or partially cleansed mixed fund, if these transfers aren’t nominated for the purposes of the cleansing provisions.

If nominated transfers exceed the amount of that kind of income held in the mixed fund account immediately before the transfer then the normal mixed fund rules will apply. Such a nomination would be invalid and would have the potential to affect all subsequent nominations possibly invalidating them too.

If you can’t identify the make-up of the transfer, because you don’t have enough evidence of what is in the other account, then the transfer will be treated as income.

Examples 1 and 2 show mixed fund nominations.

Example 7 shows multiple account nominations.

Joint Accounts

Joint mixed fund accounts can be cleansed even if only one person qualifies.

Each qualifying person can cleanse their share of the joint account by identifying:

  • the funds which are theirs
  • what those funds are, income, capital or chargeable gains

Before 6 April 2008

The statutory rules for mixed funds didn’t apply before 6 April 2008.

You can cleanse an account that contains funds from before 2008, after 6 April 2008 or both, if you meet the cleansing and qualifying conditions.

Transfers made from a mixed fund before 6 April 2008

Step 1

Calculate the total amounts of income and chargeable gains in the mixed fund immediately before the transfer took place.

Step 2

Work out the proportion of income and gains contained within the account.

If the amount transferred is less than the total amount of income and gains, treat that transfer as comprising of the proportions of income and gains contained within the account.

If the amount transferred exceeds the total amount of income and gains you don’t need to proceed further than step 1 – the initial identification of the total amounts of income and gains contained within the account before the transfer took place.

Examples 3 and 4 show transfers from mixed fund account before 6 April 2008.

Transfer made into a mixed fund before 6 April 2008

Step 1

Calculate the total amount of income and chargeable gains in the other overseas account immediately before the transfer took place.

Step 2

Work out what proportion of the total income and chargeable gains is income and chargeable gains.

The transfer to the mixed fund account will consist of income and chargeable gains in the proportions as worked out at step 2.

Examples 5 and 6 show transfers into mixed fund account before 6 April 2008.

Examples

Example 1

Natasha has a mixed fund containing:

  • 2012 to 2013 foreign income £1 million
  • 2013 to 2014 foreign income £2.3 million
  • 2014 to 2015 foreign income £1.5 million

Total £4.8 million

  • 2010 to 2011 foreign gain £500,000
  • 2011 to 2012 foreign gain £750,000
  • 2012 to 2013 foreign gain £2.5 million
  • 2013 to 2014 foreign gain £1.5 million

Total £5.25 million

On 10 January 2018 Natasha nominates and transfers to an already existing account (containing only foreign gains) £4.5 million. She keeps sufficient evidence which shows the transfer consisted of:

  • £1.5 million 2013 to 2014 foreign gain
  • £2.5 million 2012 to 2013 foreign gain
  • £500,000 2010 to 2011 foreign gain

The £750,000 foreign gain from 2011 to 2012 remains in the original mixed fund for the time being.

Example 2

Flavia has a mixed fund account which contains the following funds immediately before she nominates a transfer under the cleansing provisions:

  • 2014 to 2015 overseas capital gain £200,000
  • 2014 to 2015 clean capital £150,000
  • 2013 to 2014 foreign income £110,00
  • 2013 to 2014 overseas capital gain £600,000
  • 2010 to 2011 foreign income £850,000

Flavia nominates £1 million foreign income, transferring this to a new account (B) on 17 July 2018. Flavia then nominates £800,000 capital gains transferring it to a new account (C). Flavia leaves the £150,000 in the original account (A)

The total amount of foreign income immediately before the first transfer was £960,000, Flavia’s transfer exceeds the total amount of foreign income contained in the account by £40,000.

This error means that Flavia has breached one of the cleansing conditions, instead of successfully cleansing the original account Flavia has engaged the mixed fund rules at section 809Q and 809R (that is the entire £1 million is taken to be an offshore transfer) creating another mixed fund. She will need to work out by applying these rules the proportion of income, gains and capital that this account contains.

Flavia can if she wishes subsequently cleanse this account (B) by correctly applying the cleansing provisions so long as she is within the 2 year window.

Example 3

Brad has a pre-2008 mixed fund account. On 30 October 2007 a transfer of £100,000 was made from that account to another of Brad’s accounts. Immediately before this transfer the account contained:

  • capital £200,000
  • income £300,000
  • chargeable gains £500,000

Totals £800,000

Proportionally this means:

Income is 37.5% and gains are 62.5% of the total income and gains held within the account.

Applying these proportions against the £100,000 transfer means that:

£37,500 income, and £62,500 gains were transferred from this account on 30 October 2007.

This leaves the balance remaining in the account after the transfer:

  • capital £200,000
  • income £262,500
  • gains £437,500

If Brad meets the qualifying individual and cleansing conditions, he can if he so wishes cleanse this account.

Example 4

The facts are identical to example 3, but instead Brad makes a transfer from the account on the 30 October 2007 of £850,000.

The total amount of income and chargeable gains in the account immediately before the transfer was £800,000. The balance of £200,000 being capital.

This means that Brad transferred all the income and gains plus £50,000 of his capital, leaving a balance of £150,000 capital.

As this account now only contains one source of funds, the £150,000 capital, there is no need for Brad to apply the cleansing provisions to it.

Example 5

Sanjeev has 2 accounts which contain funds that arose before 6 April 2008. On 16 January 2007 a transfer was made from his British Virgin islands (BVI) account (the other account) of £2 million to his Jersey account (the mixed fund account).

After the transfer the Jersey account contains £7.8 million.

Sanjeev knew that prior to the transfer the Jersey account contained:

  • capital £1.2 million
  • income £4 million
  • chargeable gains £600,000

Total £5.8 million

Sanjeev needs to follow steps 1 and 2 on his BVI account to work out what the £2 million transfer was.

The BVI account before the transfer contained:

  • capital £450,000
  • income £2.25 million
  • chargeable gains £1.75 million

Total £4.45 million

Step 1 the total income and gains in the BVI account was:

  • income £2.25 million
  • chargeable gains £1.75 million

Total £4 million

Step 2 the proportions are:

  • income 56.25%
  • chargeable gains 43.75%

Applying these proportions to the £2 million transfer means that Sanjeev transferred:

  • income £1.125 million
  • chargeable gains £875,000

to his Jersey account

The Jersey account after the transfer contains:

  • capital £1.2 million
  • income £5.125 million
  • chargeable gains £1.475 million

Total £7.8 million

Provided all the conditions are met Sanjeev can if he wishes cleanse his Jersey account.

Example 6

The facts are identical to example 5, except that Sanjeev doesn’t know what was in his BVI account before the transfer.

He can’t complete steps 1 and 2, so the whole £2 million transfer to his Jersey account will be treated as income.

This means that after the transfer his Jersey account will contain:

  • capital 1.2 million
  • income £6 million
  • chargeable gains £600,000

Total £7.8 million

Provided all the conditions are met Sanjeev can if he wishes cleanse his Jersey account.

Example 7

Multiple account nominations

Hamid is a qualifying individual He has been continually resident in the UK since the tax year 2001 to 2002 and has always assessed himself on the remittance basis. Hamid has 4 offshore bank accounts:

  • Isle of Man (IOM)
  • Jersey
  • Switzerland
  • BVI

All these accounts are mixed fund accounts and are made up as below:

IOM account

  • 1999 to 2000 £900,000 foreign earnings
  • 2003 to 2004 £100,000 foreign income
  • 2003 to 2004 £500,000 inheritance
  • 2007 to 2008 £200,000 foreign gain

Jersey account

  • 2008 to 2009 £500,000 inheritance
  • 2010 to 2011 £600,000 foreign gain
  • 2011 to 2012 £500,000 foreign income
  • 2014 to 2015 £500,000 UK employment income

Switzerland account

  • 2009 to 2010 £300,000 foreign earnings
  • 2013 to 2014 £900,000 foreign gain
  • 2015 to 2016 £100,000 foreign income
  • 2015 to 2016 £400,000 UK employment income

BVI Account

  • 2009 to 2010 £100,000 foreign gain
  • 2009 to 2010 £50,000 foreign income
  • 2010 to 2011 £2 million inheritance

Hamid wants to buy a new house in London in the near future and thinks he may need to remit some of his offshore funds for this purchase. He decides to take advantage of the cleansing provisions to simplify his finances going forward.

He decides to set up 3 new receiving accounts and nominates the following transfers into them on 2 October 2017:

  • account 1 – £900,000 (total UK employment income from the Jersey and Swiss accounts)
  • account 2 – £650,000 (total foreign income from the 3 accounts, Jersey, BVI and Swiss)
  • account 3 – £1.6 million (total foreign gain from the 3 accounts, Jersey, BVI and Swiss)

Hamid leaves his £500,000 inheritance in the original Jersey account, the £2 million inheritance in the original BVI account and the £300,000 foreign earnings in the original Swiss account. These accounts have been cleansed.

On 12 December 2018 Hamid cleanses his IOM account. He transfers the 2003 to 2004 £100,000 foreign income into the existing account – account 2.

Hamid transfers the 2003 to 2004 inheritance into his original Jersey account, leaving the balance of £900,000 foreign earnings in the original IOM account. As Hamid has nominated all these transfers under the cleansing provisions he has successfully cleansed his IOM account.

If he wants to safeguard the 3 new accounts and his other 4 cleansed accounts from becoming mixed fund accounts in the future, Hamid will have to ensure that any funds accruing in each account (for example, interest) are paid into a separate account to prevent ‘tainting’ of the funds.

Source: HMRC