Repeat remittances
If a resident, but non-domiciled, individual transfers income arising abroad to a UK bank account that is clearly a taxable remittance.
Repeat remittances
If a resident, but non-domiciled, individual transfers income arising abroad to a UK bank account that is clearly a taxable remittance.
If it transpires that he does not need that money here and transfers it back to the income account abroad from where it came and then, at a later date, transfers that same amount of money from that same account abroad to the UK, is it taxable again as another remittance? Alternatively, is it a case of trying to identify that it is the same income that has gone to and from the UK so that it should be taxable only once? The problem with identifying the money seems to be that, whilst it may clearly be the same amount, it is impossible to say which particular income was remitted on each occasion.
A similar situation arises in respect of cash brought to the UK out of income arising abroad which, if not spent on a particular visit, could go to and from the UK on several occasions.
Readers' advice on such situations and how matters should be planned to the best advantage would be very welcome.
Query T16,635 — Traveller.
Case law makes it clear that 'infected' funds are not to be identified under the (normal) rules in Clayton's Case (1816) 1 Mer 572 or Hallett's Case (1880) 13 Ch D 696, but on the worst possible basis for the taxpayer.
That said, the same money plainly cannot be taxed twice under the remittance basis. Money which can be shown to have been taxed on remittance to the UK will constitute capital when paid into an account abroad which already contains income which has not been remitted.
As and when remittances are made from that account, they will be paired insofar as possible against other monies which have been paid into that account and not been subjected to taxation in the UK.
Clearly, if money which has been taxed in this country (which in practice means any money which comes from here) is to be placed on deposit abroad, care should be taken to set up new bank accounts for it and its income in order to avoid intermixture with tainted funds. Such tainting can arise irrespective of whether the intermixture comes from a different source or is the income from that money itself. — Zibultong.
Although it was a case of whether negligence arose, rather than a case involving argument from the Inland Revenue, the case of Grimm v Newman & Another [2002] STC 1388 gives a word of warning to the difficulties of dealing with the remittance basis and what actually constitutes a remittance.
I think that this might be one of those situations where it is better not to get oneself into the position from the start, rather than try to sort things out later on.
It seems that we are talking about income under Schedule D, Case IV or V and this is governed by TA 1988, s 65. Perhaps the most important thing to remember — and easily overlooked — is that the section relates to 'income'.
I normally say to people that income, once received, is 'magically' transformed into capital. However, this is not totally true when dealing with the remittance basis. HMRC say, in the Inspector's Manual (IM1564), that 'The investment of income abroad does not change its character as income'. So if £100 interest is paid into a foreign bank account each year and no remittance is made in the first year, but £150 is remitted in the second, then this all represents taxable income in the UK. This is confirmed by IM1563, which states that 'where the remittance basis applies, it is ordinarily immaterial, subject to the guidance in IM1660 - IM1664, in what year the income arose'. This is subject to the qualification that the source of income had not ceased before the year of remittance, etc.
So, to continue the example above, if £100 interest arises overseas each year and the taxpayer annually remits £100, which he does not spend and returns to the account before remitting it again in the following year (and so on), he would be taxable on an annual remittance of £100.
The simplest answer ('stop digging') would seem to be to leave the money in the UK for future, possible, use. If the money must be returned abroad, then the suggestion is usually that income from one bank account should be paid into a completely separate bank account. Remittances to the UK should then be made from the 'capital' rather than the 'income' account (see Scottish Provident Institution v Allan 4 TC 591). As mentioned above the remittance must reflect income to be subject to income tax. And Simon's Direct Tax Service says (E1.325), 'The reference in TA 1988, s 65(5), to the “sums received” must be read subject to the principle that income tax is a tax on income, not upon capital, and to the words of TA 1988, s 18(3), which state that tax is charged under Sch D, Cases IV and V in respect of income arising from securities or possessions'. Kneen v Martin 19 TC 33 is the case in point here.
As examples of potential 'traps' to avoid here, the Inspector's Manual at IM1566 and IM1569 provides information on the remittance basis as it applies to mixed funds and the use of credit cards with respect to the remittance basis. — Southern Man.
Extract from reply by Questor:
I suggest a letter be written to the UK bank, to the effect that the transfer was unintended or made in error, if that is so, and directing the bank to return all the funds on the basis that, and as if, it had never been made and clearly as to 100% of the amount (less any reasonable bank charges if the bank have not been at fault). In the client's next tax return, a copy of this letter should be annexed to the return with an appropriate explanation of the circumstances and claiming that no remittance was ever contemplated and in fact did not take place. After all, it must follow logically — even for tax purposes — that a remittance must involve some element of use/enjoyment, not just a contra of funds.
If the client had made the error, the bank would be entitled to make some charge, evidence of a negative remittance. Note, by way of contrast, the case of Duke of Roxburghe's Executors v CIR [1936] 20 TC 711, where the taxpayer's instructions were not followed by the bank and the court construed the resulting remittance in a favourable alternative to the taxpayer.
As to the future, the client should be advised of the useful decision in Carter v Sharon 20 TC 229, which placed an effective and valuable limit on the tracing principle for remittances. This applies if the income that has accrued abroad for a non-UK domiciliary is beneficially, unconditionally and completely gifted, transferred to another person, the recipient, who so receives it abroad. If the recipient then remits the sum, e.g. the gift, to the UK, there is normally no assessable remittance of that income. Under this method, a foreign domiciliary could effectively remit income to others, e.g. children or spouse, without a tax charge. Of course the donor must be effectively excluded from benefit and must take care that this income is fully segregated from capital. In this context of the transferor being fully excluded from benefit see also the leading decision in Grimm v Newman CA [2002] STC 1388.
