It was announced in Budget 2015 that new rules to deem individuals domiciled for all UK tax purposes would be effective from 6 April 2017. To provide some transition for individuals caught by these provisions, a one year opportunity to ‘cleanse’ offshore mixed funds was provided.
A mixed fund arises where amounts are invested in offshore assets or accounts that derive from multiple sources of income or gains, and/or multiple tax years. Generally, where a non-domiciliary, who has used the remittance basis, sends money to the UK from a mixed fund, it is taxed at the highest rates first, leaving the non-taxable capital amounts as the last to be remitted.
‘Cleansing’ allows the individual to transfer amounts from the mixed fund to another account, and nominate what type and amount of income, gain or capital that transfer will comprise. Previously, the proposal would only give a one year window to make the transfer and election, but this has extended to two years, being 2017/18 and 2018/19. Parliament has gone further to allow the nomination to include any income, gains or capital arising prior to 2007/8, whereas previously it was anticipated that these old years would be blocked.