HMRC have published some further FAQs on this subject. They address the thorny subject of nominated income, and confirm that where there has been a genuine accidental remittance of nominated income and the transfer is reversed without unreasonable delay, HMRC will usually use its discretion to disregard the transaction altogether.
It is confirmed that if nominated income is used to pay the nondom charge of £30,000, this will not be treated as a remittance and the awful consequences of remitting nominated income would not apply.
The most alarming element of the FAQs is the complete lack of sympathy (some may say understanding) of the problems to which the new rules give rise. In the context of alienation of income, an example is suggested in which a man gives some foreign income to his spouse, who later and independently gives it to a trust and, in due course, the trustees benefit some other relevant person without the knowledge of the donor. What is the donor to do to ensure all his tax obligations are properly fulfilled?
HMRC merely say that the tracing rules would bring such a remittance into charge and the donor must make sure the donee tells him or her if the property or anything derived from it is brought to the United Kingdom. If this is too onerous, the donor may wish to consider not making a transfer at all.
This is deeply unsatisfactory. If the donor is liable for tax, he or she must surely be entitled to know whether or not a liability arises. The answer is not for HMRC to say “I would not start from here”, and it is hoped that the professional bodies will exert sufficient pressure to get this shameful approach clarified.
HMRC confirm that segregated income and capital accounts will be regarded as separate accounts for the mixed fund rules, even if they are established with the same bank or branch, or even under a single all-embracing agreement with the bank as sub-accounts. Similarly, it is confirmed that a remittance will not be treated as having been made where payment is cleared through London in the normal banking process. HMRC’s reasoning on this aspect is that the individual has no right to payment at any intermediate point and no control over the funds that are in transit. Again, the same principle would apply in relation to mechanistic banking transfers, in which a courier passes through the United Kingdom in transit carrying property not covered by the temporary importation exemption.
It is also confirmed that interest on a maturing deposit that is credited to the capital account, but which under the bank’s normal internal system is immediately and identifiably transferred to an income account, will not taint the principle so as to cause the mixed fund rules to apply.
The payments on account implications of the non-dom charge seem to be extraordinarily difficult. It is clear that an individual will have to make payment on account of the £30,000 charge if income is nominated, but not if capital gains are nominated. The taxpayer would, of course, be able to claim to reduce payments on account on the grounds that he or she will not be claiming the remittance basis in the following year. However, if he or she does subsequently claim the remittance basis, interest will be charged on the basis of the payments on account that should have been made.