If you’re a UK resident with offshore accounts, you may have heard about “mixed funds”—accounts containing a blend of clean capital, foreign income, and gains. For non-doms, these accounts can be a minefield. The way HMRC orders remittances from mixed funds is highly technical, and even small mistakes can lead to unexpected tax bills, lengthy investigations, and legal disputes.

Why Mixed Funds Create Legal Headaches

Mixed funds are common for internationally mobile families. You might have received income from investments, sold property, or made gifts—all deposited into the same account. When you transfer money to the UK, HMRC applies strict ordering rules: remittances are treated as coming first from income, then gains, then clean capital. If you can’t prove the source, you could be taxed on the full amount.

The Rules: How HMRC Orders Remittances

HMRC’s approach is methodical. If you remit £100,000 from a mixed account, they’ll look at the account history to determine whether the funds are income, gains, or clean capital. If the account contains £50,000 of untaxed income, £30,000 of gains, and £20,000 of clean capital, the first £50,000 remitted is treated as income, the next £30,000 as gains, and the final £20,000 as clean capital.

If you can’t provide clear records, HMRC may assume the worst and tax the entire amount as income.

Common Scenarios

• Multiple offshore accounts with historic transfers

• Family payments and gifts mixed with investment income

• Poor record-keeping or missing documentation

For example, Priya has three offshore accounts. She’s made transfers between them over the years, received gifts from family, and deposited investment income. When she remits £500,000 to the UK, HMRC asks for a breakdown. Priya struggles to reconstruct the account history, and HMRC assesses the full amount as taxable income.

Case Study: HMRC Dispute Over £500,000 Remitted from a Mixed Account

Priya’s situation is not unique. HMRC opens an investigation, requests bank statements, and asks for evidence of the source of funds. Priya provides some records, but gaps remain. HMRC issues an assessment, and Priya must decide whether to challenge it.

Technical Steps: Reconstructing Account Histories

• Gather all bank statements, transaction logs, and correspondence

• Identify the source of each deposit—income, gains, gifts, or clean capital

• Create a timeline of transfers and remittances

• Provide evidence to HMRC, explaining the source and purpose of each transaction

If records are missing, consider professional forensic accounting to reconstruct the account history.

Legal Process: HMRC Investigation and Assessment

HMRC may issue an assessment based on their analysis. If you disagree, you can challenge the calculation:

• Write to HMRC, providing additional evidence

• Request a review or appeal the assessment

• Prepare for a tribunal if the dispute cannot be resolved

Tribunals consider the evidence, account history, and HMRC’s approach. Outcomes depend on the quality of your records and the clarity of your explanation.

Solutions and Workarounds

• Segregate funds going forward—keep clean capital, income, and gains in separate accounts

• Use clean capital for UK payments to avoid triggering a tax charge

• Document every transfer and keep records for HMRC

• If you’re unsure, seek professional help to reconstruct account histories

Final Checklist and Practical Tips

• Review your offshore accounts and segregate funds

• Keep detailed records of all deposits and transfers

• Document the source and purpose of each remittance

• Respond promptly to HMRC enquiries

• Challenge incorrect assessments with evidence

• Consider forensic accounting for complex cases

Feeling Overwhelmed? You’re Not Alone

Mixed fund ordering disputes are technical and often contentious. But with careful planning, clear records, and timely action, you can resolve conflicts and protect your wealth. If you’re unsure, keep asking questions and make sure your accounts are fit for the new regime.

Disclaimer: This article provides general information for educational purposes only. It is not legal, financial, or tax advice. Outcomes can vary based on your personal circumstances.