Calculation of UK tax on Mixed Funds

I have been looking into the cleansing rules, and although my husband will be able to benefit, I am apparently ineligible because I was born in the U.K. of UK parents so my domicile of origin is the UK.

Will a spousal gift help? Can you transfer the bad assets into an excluded property trust before becoming deemed domiciled?  It sounds as if you need a good tax lawyer to advise you.

The cleansing rules next year may help; but you'd need to be in cash so you may want to act by 31 December 2016.

This was another question I had. Why sell by end of this year? Couldn't he sell at any time during the April 2017-18 financial year to take advantage of the unmixing rules? I was thinking the best would be to sell around April 1 2018 so that he could reinvest almost immediately (after April 6, 2018 since that's the new financial year) separating everything out into 3 separate funds - one for clean capital, second for DIVs and third for CGs/OIGs (I still don't understand the difference there - for me the CGs in a foreign account must be OIGs).

Will a spousal gift help? Can you transfer the bad assets into an excluded property trust before becoming deemed domiciled?  It sounds as if you need a good tax lawyer to advise you.

It is certainly looking increasingly complex. We are meeting a tax advisor next week. Thank you for your suggestions

I write for professional tax publications. The 31 December is something I have recommended for a while in my articles because no-one knows what US legislation will exist in 2017. If there was a strong Democrat win, Clinton's tax policy is to increase many tax rates. Trump's tax policy includes abolishing Reagan's AMT & cutting tax rates substantially, but Trump looks very unlikely to have political control, even if elected President. With that much uncertainty, many people will want to lock into today's tax rates now.

I comment further in connection with Angeline’s additional questions.

While it might seem logical to have a rebasing of the cost of assets to market value as at the date when UK residence started, there is no rule to this effect under UK capital gains tax.

Instead, when an asset is sold during a period of residence, the gain is computed on general principles. The gain is therefore the disposal value less the acquisition cost.

Acquisition cost is the cost of the asset in sterling terms, using exchange rates prevailing at that time.

Equally, if an individual later ceases to be a UK resident, there is no charge to capital gains tax at that point. In other words, there is no deemed disposal at market value when residence ceases. So there is a symmetry to the UK rules.

Many thanks. Although not what I was hoping to hear, it is now absolutely clear.

I will add - with respect and deference - Dunedin's last point. There is no Court in the UK that has decided yet which daily exchange rate to use; mid-market, closing, Interbank etc. In practice you may want to use a cash rate rather than an Interbank, as you are not a central bank so an Interbank rate would be unachievable for you as an individual.  Yes this is only going to tinker at the margins; but using the optimum rates for you can save real money.

Thanks again Guya. All your replies have been very helpful to me.

A follow-up question about the 2017-18 cleansing rules for mixed funds:

If my husband takes advantage of the cleansing opportunity, can he sell a partial lot of a mutual fund that he owns, rather than the entire lot? 

At first, I was thinking that he would have to sell everything in order to clean up his mixed funds, but actually perhaps he can just sell the portion that would yield the greater amount of "Clean Capital."  It would be to his advantage to sell only the shares owned prior to becoming resident in the UK, and leave invested the shares bought after becoming resident.  If he sells the earlier shares there will still be Dividends and Capital Gains to separate off from the Clean Capital but after remitting the Clean Capital, he could then reinvest the DIVS and CGs in the U.S., so the only additional tax burden to him would be the LTCG tax in the US due on the sale of those earlier shares.

Does that sound correct?