Mixed funds relief: non dom tax changes


Andy Wood

Andy is a practical, creative tax adviser who assists a variety of clients in achieving their personal and commercial objectives in the most tax efficient manner.

Mixed Funds relief – non dom tax changes


Perhaps the second ‘silver lining’ – in addition to rebasing relief for CGT purposes – provided for by the Government as part of the non dom tax changes. However, that said, its practical usefulness does remain open to question.

A well advised non dom coming to the UK should have been told to maintain separate accounts for clean capital and foreign income and gains (“FIG”).This process is often referred to as the segregation of accounts.

Why on earth would one want to do this? Essentially, this would leave said non dom with a degree of control over taxation. It would allow him or her to pick and choose from which account any remittance might be made.

This isn’t just an administrative convenience. If the cash is held in one big slush fund then the legislation will deem that the most harshly taxed funds come out first (eg income) and then capital gains, and lastly clean capital. Not good.

Mixed funds – the relief

Perhaps surprisingly, the proposals allow a non dom who finds himself in this particular pickle to separate out the constituent parts of a mixed funds in to separate pots. This means that one is in a position to choose what to remit or not.

The consultation stated that this relief would only be available where such separation takes place in 2017/18 tax year. However, it saw fit to extend this period by the time it penned the draft Finance Bill 2017 – adding a second tax year (2018/19) to the window of opportunity.

The relief only applies to cash. Therefore if one wishes to undertake the planning on an asset such as, say, a painting then one would need to first sell it (perhaps after benefiting from rebasing relief) and then separate it out.

Finally, this relief is not available to that newly created pariah-like category known – the Former Domiciled Resident or Returning non-dom.

The practicalities of mixed fund relief

It will not all be plain sailing, however. One needs to be able to track the makeup of the funds. To be clear, this is not a ‘free for all’.

There are clearly going to be administrative challenges in ‘following the money’. There will be particular practical issues prior to 2008 where many offshore providers kept much ‘lighter’ records than they do now.

In this area, the proof of the pudding will be in the eating. What do HMRC expect to see where a taxpayer is trying to avail themselves of this relief? What guidance will be issued?

Mixed funds relief – what next?

In terms of actions, we would recommend that non doms review their position regarding any such funds as soon as possible (though the addition of a second year make this slightly less pressing).

Clearly, it will be a cost benefit analysis. What are the professional costs of drawing up any such accounts against any potential benefits?

For a signpost to all related articles on the non dom tax changes please click here.


If you or your clients have any queries over mixed funds relief or any other aspects of the non dom tax changes then please get in touch

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