Mixed Accounts Print

Where funds have been mixed in a particular bank account, there are rules which determine the order in which income or gains within that account are remitted to the UK. The relevant order is:

Employment income not within any of the categories below

Foreign earnings which are not subject to foreign tax

Foreign specific employment income which is not subject to foreign tax

Relevant foreign income which is not subject to foreign tax

Foreign chargeable gains which are not subject to foreign tax

Foreign earnings subject to foreign tax

Foreign specific employment income which is subject to foreign tax

Relevant foreign income subject to foreign tax

Foreign chargeable gains subject to foreign tax

Any income or capital not included above, and including income or capital taxed in the UK.

The above identification rules work on a year-by-year basis, taking the current year first and working backwards. Each account is looked at individually. So, for example where an account holds foreign untaxed income arising in the current tax year and foreign income of the previous year which is subject to UK tax because the remittance basis was not claimed for that year, then the current year’s untaxed income will be remitted in priority to the prior year’s taxed income. However, if the current year’s income is paid into a separate account, it may be possible to remit the income of the previous year on which UK tax has been paid without having to remit the current year’s income first.

Ideally the individual should maintain 3 income accounts.

The first account is for prior years’ income on which the remittance basis has been claimed, so has remained untaxed in the UK.

The second account is for prior years’ income which has been taxed in the UK on the arising basis.

The third account is to hold current year income which should then be transferred into either of the above two accounts shortly before the year end, when it can be established if the remittance basis or arising basis will apply for that year.

Keeping untaxed income and gains in separate accounts from capital and taxed income in order to avoid these identification problems is of high importance to individuals who may wish to bring funds into the UK from overseas.

In determining the amount of original capital, it will still be necessary to track investments over a number of transactions before an amount is remitted to the UK, as it is only the original capital which remains exempt from UK tax.

Where the original chargeable assets have been acquired in a currency other than Sterling, then a gain may arise on the disposal of the asset. The gain will be based on the Sterling exchange rate of the proceeds at the date of disposal less the Sterling exchange rate of the cost at the date of acquisition. There is no re-basing of the cost of the asset at the date on which the individual arrives in the UK.

Gains and losses realised on foreign currency held in a bank account on or after 6 April 2012 are exempt from CGT.

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