Cleansing/rebasing more details emerge

04 April 2018

As part of wide reaching changes for non-UK domiciled (non-dom) individuals since 6 April 2017, the opportunity to separate out mixed fund accounts and rebase foreign assets as at 6 April 2017 has been made available for certain individuals. Giving suitable consideration to these changes may allow certain non-doms to benefit from reduced UK taxation on remittances into the UK and/or on disposals of non-UK assets.

Cleansing mixed fund accounts

Following Finance (No.2) Act 2017 we now have clarification of how the ‘cleansing’ provisions to transfer the different elements of mixed funds to separate accounts will apply and the conditions that will need to be met.

It has been confirmed that the period in which this cleansing can take place is for the 2017/18 and 2018/19 tax years. However, the legislation states that this cleansing is only available to ‘qualifying individuals’, ie those who have claimed the remittance basis in any tax year prior to 2017/18. Also, cleansing is not available to individuals who were born in the UK with a UK domicile of origin (the so-called ‘formerly domiciled residents’).

The legislation states that the transfer from the mixed fund must be made to a separate account which must be ‘nominated’ by the taxpayer. There are no specifics on the precise format in which this nomination must be made, however, it must specify the ‘type’ of funds that are being transferred into the new account ie income or gains. Our understanding is that this nomination can be made in the tax return for the relevant year or through a standalone claim in writing to HMRC. Given these options, a standalone claim is likely to be administratively easier. Once a transfer is made from say account A to account B, no further transfer can be made to the same account. A transfer to account C can be made with a further nomination. 

It will be important to identify the capital element being separated from income and gains as an overstatement of the capital account could mean it is ‘tainted’. Great care will, therefore, be needed in identifying the correct amounts to be separated within the relatively short remaining period to 5 April 2019.


Finance (No.2) Act 2017 has also provided clarification in relation to the rebasing provisions. It has been confirmed that these provisions will only apply to certain individuals who become deemed domiciled for all taxes under the ’15 out of 20 previous tax years’ rule on 6 April 2017. Again, ‘formerly domiciled residents’ will not be eligible for this relief.

The individual must have claimed the remittance basis and paid the remittance basis charge (RBC) in a tax year prior to 2017/18. As such, if an individual has significant unrealised gains in overseas assets, it could be worth them claiming the remittance basis in the 2016/17 tax year while this is still possible, even if it is not the most immediately UK tax efficient option. As the RBC payable for 2016/17 is either £60,000 or £90,000, dependent on the number of years the individual has been resident in the UK, care should be taken over this decision to ensure that it is likely to be the best overall option .

In order to qualify for rebasing, the asset being disposed of after 5 April 2017 must not have been located in the UK at any time from 16 March 2016 (or the date of acquisition, if later) to 5 April 2017. There are some instances where an asset that has been brought to the UK can be treated as remaining outside the UK for purposes of rebasing (eg, if brought into the UK for repairs or with the sole intention to sell).

It has also been confirmed that the rebasing provisions will apply to non-reporting funds (which are usually subject to income tax instead of capital gains tax on disposal), which can make this relief very generous for this type of investment.

The legislation also states that, for an individual to benefit, they must remain deemed domiciled under the new rules for all tax years until the date of disposal. This issue could become relevant if an individual goes abroad temporarily, eg to work for a period, and they lose their deemed domiciled status in that period.

While no election is needed for rebasing, as the assets will be rebased automatically, it is, however, possible to elect out of rebasing on an asset by asset basis. So, where a loss on disposal of a particular asset is envisaged, it may be preferable to elect to use its original base cost for capital gains purposes.

Non-doms with significant assets abroad should review base costs as at 6 April 2017 as soon as possible, rather than on the disposal of an asset, when information on the 6 April 2017 value may not be as readily available.

RSM can help you undertake a review of mixed accounts and the potential capital gains tax position on the rebasing of assets to support your decision making on what actions are required.

For more information, please contact Rajiv Vadgama or Adam Jefferies.

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