RDRM35270 - Remittance Basis: Amounts Remitted: Mixed Funds: Remittances from mixed funds - collateral in respect of relevant debts
Source: gov.uk (2025-04-07)


Overview (#Overview)

Example 1 (#Example 1)

Example 2 (#Example 2)

Example 3 (#Example 3)

Example 4 (#Example 4)

Example 5 (#Example 5)

Overview

Where foreign income and gains are used as collateral for a loan there will be a taxable remittance when the loan is brought to, or is within, the UK, as the foreign income or gains have been ‘used in respect’ of a relevant debt. Refer to RDRM33170 (https://www.gov.uk/hmrc-internal-manuals/residence-domicile-and-remittance-basis/rdrm33170) and RDRM35050 (https://www.gov.uk/hmrc-internal-manuals/residence-domicile-and-remittance-basis/rdrm35050) for further guidance. If more than one source of foreign income or gains, or a mixture of foreign income or gains and ‘clean capital’, are offered as collateral and the total collateral exceeds the relevant debt, or it exceeds the part of the loan brought to or within the UK, the mixed fund ordering rules at section 809Q(4) ITA 2007 determine which kinds of foreign income and gains, and from which tax year, are remitted to the UK.

Although the mixed fund rules at section 809Q(1)(b) refer to a ‘transfer’ from a mixed fund, the funds offered as collateral do not need to be moved from an offshore account for the use of a mixed fund as collateral to be within the meaning of section 809Q(1)(b).

The collateral offered may be an asset, such as a property, which is itself a mixed fund. In such a case, the taxable amount is the foreign income and gains that were used to purchase the asset.

The collateral offered may be more than one asset, for example a bank account and a property, or several bank accounts. In this case the collateral will comprise or derive from more than one source of foreign income and gains, and possibly also clean capital, so the mixed fund ordering rules will determine which kinds of foreign income and gains, and from which tax year, are remitted to the UK. Refer to RDRM35240 (https://www.gov.uk/hmrc-internal-manuals/residence-domicile-and-remittance-basis/rdrm35240)for guidance on how to identify the nature of remittances using the mixed fund ordering rules.

Example 1

In 2022-2023 John, a remittance basis user, takes out a loan for £200,000 from a Guernsey bank. John uses the loan to purchase a horse, stable and paddock in Chester to encourage his young daughter’s latest hobby, so the loan is a relevant debt.

John offers as collateral for the loan a charge on his Guernsey farmhouse, which he purchased for £320,000 in 2010-2011. The funds used to purchase the farmhouse comprised:
- £60,000 of John’s untaxed relevant foreign income from 2008-2009
- £50,000 of John’s untaxed relevant foreign income from 2009-2010
- £120,000 of John’s foreign chargeable gains from 2009-2010
- £90,000 of clean capital from a family inheritance in 2007-2008
John has used his foreign income and gains as collateral in respect of a relevant debt. The use of the foreign income and gains as collateral is a taxable remittance, and the amount of the remittance is the foreign income and gains used to acquire the asset, capped at the amount of the loan, as this is the amount ‘used’. The mixed fund ordering rules are used to identify the foreign income and gains remitted. The amount remitted in 2022-2023 is £200,000, which comprises £50,000 of his relevant foreign income from 2009-2010, his £120,000 of foreign gains from 2009-2010 and £30,000 of his relevant foreign income from 2008-2009.

Example 2

John, as per example 1, takes out the loan but the farmhouse which John offers as collateral in respect of the relevant debt was purchased for £150,000 in 2010-2011. It is worth £250,000 in 2022-23. The funds used to purchase the farmhouse comprised:
- £60,000 of John’s untaxed relevant foreign income from 2008-2009
- £50,000 of John’s untaxed relevant foreign income from 2009-2010
- £40,000 of clean capital from a family inheritance in 2007-2008
John has used his foreign income and gains as collateral in respect of a relevant debt. The use of the foreign income and gains as collateral is a taxable remittance.

Any increase in the value of the farmhouse is ignored. The amount remitted in 2022-2023 in this example is £110,000, which in accordance with the mixed fund ordering rules comprises his £50,000 relevant foreign income from 2009-2010 and his £60,000 relevant foreign income from 2008-2009.

Example 3

In 2021-2022 Alice, a remittance basis user, obtained a £500,000 loan from a Guernsey bank. Alice used two overseas bank accounts as collateral for the loan. When Alice offered the collateral for the loan, the first, account A, contained unremitted foreign income of £300,000 from 2017-2018. The second, account B, contained a £300,000 unremitted foreign chargeable gain from 2017-2018.

Alice uses £400,000 of the loan to acquire a plot of land in the UK and so the loan is a relevant debt. Alice uses £100,000 of the loan to acquire artwork in Spain which she keeps in her flat in Madrid.

Only £400,000 of the £500,000 loan has been brought to the UK so the amount of the taxable remittance is capped at £400,000. The mixed fund ordering rules are used to identify the foreign income and gains remitted. In this case, the amount remitted is £400,000, which comprises her £300,000 foreign income for 2017-2018 in account A and £100,000 of her foreign chargeable gain for 2017-2018 in account B.

Example 4

Alice, as per example 3, obtained the loan but instead she offered 4 accounts at the same overseas bank as collateral, which at the time of offering the collateral contained the following.

Account A contains:
- £100,000 untaxed foreign income from 2017-2018
- £200,000 untaxed foreign income from 2015-2016
- £50,000 clean capital from 2014-2015
Account B contains:
- £100,000 untaxed foreign chargeable gains from 2017-2018
- £200,000 untaxed foreign chargeable gains from 2016-2017
- £200,000 clean capital from 2015-2016
Account C contains:
- £500,000 untaxed foreign income from 2014-2015
- £120,000 clean capital from 2013-2014
Account D contains:
- £300,000 untaxed foreign income from 2016-2017
- £200,000 untaxed foreign income from 2014-2015
- £50,000 clean capital from 2012-2013
The amount of the taxable remittance is capped at £400,000 and the mixed fund ordering rules are applied to identify the foreign income and gains remitted. The remittance therefore comprises:
- £100,000 of her foreign income from 2017-2018 from account A
- £100,000 of her foreign chargeable gains from 2017-2018 from account B
- £200,000 of her foreign income from 2016-2017 from account D
Example 5

In 2011-2012 Heinz, a remittance basis user, takes out a 10-year loan for £700,000 from a Jersey bank. He uses an Austrian bank account containing £700,000 of his relevant foreign income from 2011-2012 as collateral for the loan. He uses the loan to purchase an apartment in the UK for £700,000, so the loan is a relevant debt.Heinz has used his foreign income as collateral in respect of a relevant debt. The amount used is £700,000. Therefore, Heinz has remitted £700,000 to the UK in 2011-2012.In 2015-2016, Heinz pays in £100,000 of relevant foreign income received in 2015-2016 to his Austrian bank account. The bank account is now a mixed fund containing his relevant foreign income from different years. There is no remittance in 2015-2016 when Heinz adds funds to the account, as they are not replacing the original collateral. There has not been a ‘use’ of foreign income or gains in respect of a relevant debt as the original foreign income used as collateral remains in the account.

In 2017-2018 Heinz sells his apartment in Vienna for £200,000. He purchased it the previous year using £200,000 of untaxed foreign gains from 2007-2008. Heinz deposits the sale proceeds, derived from his 2007-2008 foreign gains, into the Austrian bank account he is using as collateral. There is no remittance in 2017-2018 when these funds are paid into the account as they are not replacing the original collateral, so there has been no ‘use’ of foreign income or gains in respect of a relevant debt.

In 2019-2020 the balance on the Austrian bank account is £1,000,000, and Heinz transfers £300,000 of this to his UK bank account to purchase furniture and antiques for his UK properties. The mixed fund ordering rules provide that the £300,000 funds brought to the UK comprise his £100,000 of foreign income from 2015-2016 and £200,000 of his foreign income from 2011-2012. Section 809P(12) would reduce the amount remitted on the transfer to £100,000, as the £200,000 of foreign income from 2011-2012 was already taxed when remitted in 2011-2012. However, as the £700,000 used as collateral in the Austrian bank account now comprises the remaining £500,000 of foreign income from 2011-2012 and the £200,000 of foreign gains from 2007-2008, because the foreign gains have replaced original collateral, the £200,000 of foreign gains are also remitted to the UK in 2019-2020. This is because the £200,000 of foreign gains have been used in respect of a relevant debt by forming part of the collateral that now secures the loan. Therefore, Heinz has remitted a total of £300,000 to the UK in 2019-2020, comprising £100,000 foreign income and £200,000 foreign gains.

Note – Previous HMRC guidance did not follow the position given above and suggested that where a higher amount of foreign income and gains were offered as collateral than the amount borrowed, the amount remitted would not be capped at the loan amount. A copy of the previous version of RDRM35270 can be found on The National Archives site.