RDRM35630 | Remittance basis: Mixed funds: Cleansing of mixed funds: What can be cleansed?

Cleansing was only available for amounts held in overseas bank (and similar) accounts. It was not extended to other assets which might themselves be a mixed fund, such as shares or other property.

Example

Giovanni, a qualifying individual, has a painting - which is a mixed fund, because it was originally bought using funds from various sources:

£350,000 2009-2010 foreign income

£400,000 2009-2010 Inheritance

£350,000 2010-2011 foreign gain

Total cost £1,100,000

If Giovanni brings the painting to the UK, he will be taxable on the foreign income and the foreign gain that were used to purchase the painting – he cannot physically divide the asset into its component parts. In this example, Giovanni’s taxable remittance would be £700,000, the total of the foreign income and foreign gain used to buy the painting. The £400,000 inheritance would be treated as clean capital.

To take advantage of the mixed fund cleansing provisions he will have to sell the asset as cleansing can only apply to money.

Giovanni sells the asset overseas on 17 July 2017 for £2,500,000 and places the sale proceeds into a single account in Switzerland, which already contained £5 million (the balance of Giovanni’s inheritance).

This account now contains:

£350,000 2009-2010 foreign income

£5,400,000 2009-2010 inheritance

£350,000 2010-2011 foreign gain

£1,400,000 2017-2018 foreign gain

On 3 October 2018 Giovanni applies the mixed fund cleansing provisions to the account. He nominates transfers to 2 new accounts, the first containing £350,000 foreign income, and the second £1,750,000 foreign gain, leaving the balance of £5,400,000 of clean capital (his inheritance) in the Swiss account.