Mixed Funds and Remittances

To claim remittance or not?

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I have a new client that has a large offshore mixed fund.

We are determining whether or not to claim remittance basis now (additional rate payer) and what the tax consequences would be in the event they may need to transfer funds in the future given the current economic crisis we find ourselves in.

Client has lived here for less than 7 years and been reporting offshore investment income (interest & divs) under the arising basis and paying tax in the UK claiming a foreign tax credit for a portion. This income is never remitted but reinvested in the offshore funds. So this is a mixed fund correct?

If we claim the remittance basis this year, and in a later year they wish to not reinvest but remit some to the UK for living expenses what would be the issues here:

- Is the previous arising basis taxed income considered the clean portion of the mixed fund?

-If they claim arising basis in the year of the trasnfer does this create issues for the previously non-taxed income in the year remittance basis was taken? Is it then brougth into the charge of tax?

- I considered offshore investment bonds but this would not be beneficial as the funds are "tainted".

-If there are tax consequences, would this be a good opportunity to plan a gift/transfer of the offshore assets to the UK resident spouse offshore account in order for them to remit at a lower tax rate with the PA (basic rate payer)?

They plan to move back overseas in 2 to 3 years time which will be before the RBC becomes a concern. 

It seems post April 2019 the opportunity to "cleanse" mixed funds is pretty non-existent from what I can research. Sadly this client self-prepared and missed that window. 

TIA. 

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By muze7
14th Sep 2020 10:51

It sounds like the funds are dirty, not clean. My experience is that it is too much hassle, and sets them up for huge problems down the line. If they did remittance basis now, never bring the mixed funds back! You need to spend a lot of money then to have a specialist calculate which part of the funds was clean, which dirty. Not worth the trouble, unless they are millionaires. IMHO (hassle/stress vs money saving).

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