This is an extremely complex issue and creates a real trap for those wishing to claim with the remittance basis. One of the conditions for claiming the remittance basis is that you must nominate part of your foreign income or capital gains for the year. There is no UK tax advantage in doing so, but it can provide an opportunity to claim relief for the £30,000 non-dom charge against the tax liabilities in another country where that income may also be chargeable to tax.

The trap to which this gives rise relates to the rules governing the remittance of monies from mixed funds. Before 5 April 2008 a remittance from a mixed fund was treated as being made first out of income, but now there is a statutory order of priority for a remittance of income or gains from a mixed fund. Perhaps unsurprisingly, the statutory order is the least beneficial order for the taxpayer. If you ever remit any amount of the nominated income, this will cause all the overseas income and gains, nominated or not and whether or not they are in a mixed fund, to be aggregated and treated as if they are all in a mixed fund, subject to the statutory order of priority for that year and all subsequent years. This would seriously interfere with any arrangements for remitting funds to the United Kingdom.

To avoid these difficulties, no remittances should ever be made from the income that has been nominated. If this would be inconvenient, it would be worthwhile establishing a new account with a nominal sum of, say, £1,000, which will give rise to a small amount of income each year. This income would be nominated (it is not necessary to nominate £30,000 of income – any amount will do), and you would know that nothing would ever be remitted from this account, so all the above disadvantages would never arise.

I would emphasise that this is an entirely different issue from the suggestion sometime made that a separate account should be established for the purpose of remitting the £30,000 non-dom charge.

It is possible for the £30,000 charge to be paid out of income earned outside the United Kingdom without the payment giving rise to a taxable remittance. It is necessary for the cheque or transfer to be made directly from the foreign account to the account of HMRC; if the payment is routed through a UK bank account, the exemption will not apply and the payment will represent a remittance. Some people have suggested that, as this will give HMRC details of the foreign account, it would be better to establish a new account specifically for this purpose, into which funds are transferred prior to payment of the charge and which contains no other funds at all. Obviously this is an entirely different point, and it could be catastrophic for the two issues to be confused.