Winema Gaven Bowman Offshore Bank Transfer on Offshore transfer | Page 2

HMRC’s Residence, Domicile and Remittance Basis Manual at RDRM35030 does address a similar
scenario where £25,000 of unremitted income is used to purchase a car which is subsequently brought to
the UK at a time when the car is worth just £14,000.
In this case, HMRC state that they would treat the original £25,000 income as remitted. Unfortunately,
the manuals do not cover the position if the car was sold abroad and the £14,000 was remitted to the UK.
One would hope that a purposive approach enables one to limit the income and gains remitted to the
amount of funds received in the UK. Any other approach would make it impossible, in many scenarios, to
disclose remittances on a “worst case scenario” basis.
For example, a remittance of £100 from a mixed fund which has been in existence for decades should be
accepted by HMRC as a remittance of £100 income if the taxpayer does not wish to pay for the
professional costs of analyzing the funds passing through the account since inception.
However, if the derivation principle is taken to its extreme, there is nothing stopping an inspector arguing
that the £100 could have derived from income of £1m which was invested (very) badly indeed.
It is arguable that each element of the $15,000 proceeds should be proportionally reduced (giving $6,000
income, $2,250 capital gains and $6,750) and full disclosure made on the 2011/12 tax return.
However, it may be more prudent to treat the proceeds in the way suggested by Dollared because this will
provide the highest tax take. If the loss was larger (say $12,000), it would be sensible to treat the proceeds
of $8,000 as no longer containing any clean capital or capital gains so that a subsequent remittance would
be treated entirely as income of $8,000 (assuming taxable remittances are limited to the amount received
in the UK as suggested above).
I am not sure that I agree with the suggestion by Dollared that such an approach could result in double
relief (as a result of the reduction of unremitted income and the benefit of the capital loss). What if the
$20,000 investment had become completely worthless?
The income/gains attaching to the offshore transfer could clearly nev