Introduction Background
43.Currently individuals who are Resident but Not Ordinarily Resident (RNOR) in the UK for income tax purposes may opt to be taxed on the remittance basis rather than the normal arising basis. Broadly, the remittance basis provides that any income or gains that arise overseas are only taxable in the UK to the extent that they are remitted to (brought into, used in, or enjoyed in) the UK.
44.As individual types of income and gains are taxed differently, statutory rules are needed to determine how remittances to the UK should be taxed. These rules, known as the ‘mixed fund rules’, are provided by section 809Q ITA. They work by determining, for every offshore transfer or remittance to the UK, what kinds of income and gains make up that transfer or remittance. The mixed fund rules therefore operate on a transaction by transaction basis.
45.RNOR individuals who have a single employment with duties performed both within and outside the UK are, through Statement of Practice 1/09 (SP1/09) and its predecessor Statement of Practice 5/84 (SP5/84), able to apportion their annual earnings from that employment between UK and non-UK earnings on a just and reasonable basis (e.g. workdays).
46.To remove the requirement that such individuals should operate the mixed fund rules on their main overseas account into which the salary from their employment is paid on a transaction by transaction basis, SP1/09 provides a simpler administrative treatment for these individuals, as long as they meet certain conditions. This simpler treatment allows individuals to calculate the composition of any remittance or transfers from that account by reference to the total value of deposits in and transfers out of the account across the year.
47.In June 2011 the Government published a consultation on a number of issues related to the remittance basis of taxation, including the legislation of SP1/09. As a result of that consultation the Government agreed that as part of putting SP1/09 on a statutory footing, it would also provide some further easements to the current practice, including allowing the use of existing accounts and allowing earnings from multiple employments to be deposited into the same account. In addition, the new legislation requires individuals to give notice to HMRC nominating the account that they wish the special mixed fund rules to apply to, and they may only have one such account at any given time.
48.The new rules will apply from 6 April 2013.