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Whilst the remittance basis for non-UK domiciled individuals is gone, the Temporary Repatriation Facility (TRF) represents an extraordinary time limited opportunity for anyone who has previously claimed the remittance basis.
This means that the TRF does not just apply to people who recently benefitted from the remittance basis, but also to individuals who have at any time (including prior to 2008) claimed the remittance basis, regardless of whether they ever paid a remittance basis charge.
Over the years, a number of non-UK domiciled individuals may have decided to remain in the UK long term or returned after spending time away. Such individuals will often have still kept funds representing income and gains offshore. These “unremitted” funds are often used for expenditure outside the UK, to avoid triggering tax in the UK. The TRF now provides an attractive option for those individuals to bring such funds to the UK and benefit from a 12% tax rate.
The 12% tax rate is available for the 2025/26 tax year and the 2026/27 tax year. The rate increases to 15% for the third and final year of 2027/28 that the TRF will be available.
Some individuals will have complex offshore bank account arrangements, depending on the amount of segregation of income, gains and clean capital that has occurred over the years. In some cases, it has not been possible to properly ascertain what funds represent (due to the historic nature of transactions and lack of records). The 12% rate provides an attractive option to now use those funds in the UK.
The TRF legislation changes the ordering rules relating to offshore bank accounts and so advice should be taken to maximise the benefit of the TRF and designate relevant funds into a separate offshore bank account.
TRF and offshore trusts
The TRF provides even greater flexibility in relation to beneficiaries of offshore trusts, which have previously (at any time) claimed the remittance basis. The TRF can be claimed in respect of payments received by UK resident beneficiaries which are matched to offshore trust income and gains.
The 12% (and even 15%) TRF tax rate represents a significant saving where trust income can be matched to payments received from an offshore trust. However, it can also represent a significant saving in relation to “stockpiled” trust gains. These are gains which have not been matched to payments in the same or following year they were realised. When left in an offshore trust, they can eventually result in a CGT rate of up to 38.4% (using the current CGT rate of 24%) when they are matched. The ordering rules to matching are amended by the TRF, so pre-6 April 2025 gains are matched in priority where a claim is made, meaning that this could be a rare opportunity to access stockpiled gains at a lower tax rate.
Unfortunately, there is a lot of information for affected trustees and individuals to digest. Offshore trustees with UK resident beneficiaries should take advice as to how the TRF applies, to protect themselves from future scrutiny during this time of immense change in UK tax laws.
We are on hand to help clients navigate these new rules to their advantage. Should you wish to discuss any of the issues raised in this article, please contact Dhana Sabanathan.
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