Although the non-dom regime has now been abolished, income and gains sheltered from UK tax under the remittance basis of taxation (“RB”) remain taxable if remitted to the UK. However, between 6 April 2025 until 5 April 2028 there is an amnesty where these funds may be remitted to the UK at a reduced rate of tax. This facility is known as the Temporary Repatriation Facility (“the TRF”).
This article outlines the eligibility requirements and some of the practicalities involved in using the TRF.
Who can use the TRF?
Broadly, the TRF is available to all individuals that have previously benefitted for the RB while UK tax resident, but there are some specific qualifying conditions.
An individual must have been subject to the RB for at least one tax year before 6 April 2025. This includes individuals who have either claimed the RB or where the RB would have applied automatically. If you are in any doubt, we can review the position for you. As part of the review the taxpayer could consider whether an earlier tax return should be amended to include a claim or file the 2024/25 tax return on the RB.
Notable cases where the TRF may not apply include where an individual has paid tax on the arising basis but a significant proportion of income and gains arose within a Protected Trust, such that the funds held therein were not taxable on the settlor.
An individual must be UK tax resident during the year in which they wish to use the TRF, which means that non-residents who plan to return to the UK after the closure of the TRF will need to consider their options in detail.
It is also important to note that if the income or gain has been remitted in an earlier year it cannot qualify for the TRF.
How does it work?
An individual is required to “designate” the amount of “qualifying overseas capital” (“QOC”) that they wish to repatriate under the TRF. This must be done by way of a designation election within the tax return.
QOC can broadly be described as any income or gains that have not been remitted to the UK prior to 6 April 2025 and not taxed in the UK because of the RB, or alternatively, any capital that was held outside the UK since it was acquired using QOC, and has continued to be, until the date of the designation.
The designation must state the following:
- The amounts of QOC designated; and
- Whether any of the QOC has been remitted during that tax year.
It is not possible to claim a tax credit for foreign taxes paid on QOC, but deduction relief is available such that the TRF charge will only be due on the net amount designated.
Ideally, an individual will only want to designate QOC that they have identified as untaxed foreign income or gains, which have been sheltered by virtue of the RB, or capital payments received from a Trust that are matched to relevant income or stockpiled gains (see below regarding Trust payments). However, it may not always be possible to do this if detailed records have not been retained.
If it is not possible to separately identify foreign income and gains from the individual’s clean capital, for example, where funds have been mixed, a designation can be made on the full amount. However, this will result in paying the TRF charge on funds that would not otherwise be chargeable. As such, it may be worth engaging tax advisers to review accounts before making a designation under the TRF, to reduce the tax charge as far as possible.
Taxpayers should also be aware that the TRF charge must be paid with clean capital (or designated QOC) to avoid incurring a taxable remittance. Therefore, users of the TRF should account for the subsequent tax charge when deciding on the amount of funds they wish to designate.
Transferring designated funds to the UK without further tax charges
To the extent that designated QOC is held in an account with other untaxed foreign income and gains, all designated QOC will be treated as remitted to the UK in priority.
Furthermore, an annualised approach can be taken for any accounts containing designated QOC, rather than looking at transfers on a transaction-by-transaction basis.
Paying the TRF charge and reporting
Individuals must make a designation election in their UK self assessment tax return. The deadline to do this is 12 months after the usual filing deadline, so by 31 January 2028 for the 2025/26 tax year. The designation cannot be made by a third party on behalf of the individual.
Individuals should ensure they retain detailed records of their QOC designations. While an individual is not strictly required to provide these to HMRC as part of their tax return, should an individual receive an enquiry from HMRC, this may be requested as evidence as part of the enquiry.
The TRF charge is a charge on capital and will not impact the individual’s payments on accounts towards the following tax year.
Liquid assets and joint accounts
Occasionally, an individual may have used their unremitted foreign income and gains for investments outside of the UK. For such individuals, it will not be possible, practical or financially appropriate to liquidate these investments purely to benefit from the TRF (bearing in mind that the possible gain may now be taxable in the UK on the arising basis under the new rules). In such circumstances a designation can also be made on the element of QOC used to acquire the investment. The designation and resulting tax charge will be unaffected if the market value of the investments were to fall. Please note that unrealised gains are not considered to be QOC.
It has also been confirmed that QOC held within joint accounts are eligible to be designated if one or more of the individuals have been taxed on the remittance basis. HMRC suggests that they will take a pragmatic approach when determining which account holder is liable to pay any tax due, but this may be open debate!
Designating a TRF capital account
To assist with keeping designated QOC separate from other mixed funds, it will be possible to nominate a designated TRF capital account. Broadly this must be a new bank account (or an account with non-designated funds of less than £10). For more details regarding the intricacies of nominating a designated TRF capital account, please get in touch.
Designated Trust capital payments
Capital payments from non-UK resident Trusts to UK resident beneficiaries may also benefit from the TRF, to the extent that the payment is matched to pre-6 April 2025 foreign income and gains pooled within the Trust (or the Trust’s underlying companies) under the UK’s anti-avoidance provisions.
Ordinarily, pooled income and gains that are matched to capital payments made to UK resident beneficiaries are subject to Income Tax and Capital Gains Tax (“CGT”) at the recipient’s marginal rate (up to 45% and 24% respectively).
However, individuals eligible for the TRF may make a designation of any pre-6 April 2025 income and gains matched to capital payments made by the Trustees between 6 April 2025 and 5 April 2028, to reduce the tax rate to 12% (or 15% if made during 2027/28).
For trustees of offshore settlements looking to make significant distributions to UK resident beneficiaries, this relief will be extremely valuable. Although, there are complexities regarding the pools where there are pre and post 6 April 2025 income and gains and designations. We recommend that advice is sought by the Trustees in advance and confirmation obtained by the beneficiaries as to whether the TRF will be used.
As many offshore settlements will also have fallen within the relevant property regime since 6 April 2025, it will be important for trustees and beneficiaries to take advice before making distributions, as UK Inheritance Tax charges may also be due.
While the TRF will be available for three years, for those settlements that have now become relevant property trusts, making capital payments sooner rather than later is likely to reduce the Inheritance Tax charges that may be appliable.
Contact us
If you would like to discuss any of the above in more detail, please contact us for further advice.
Nick Tayler – Senior Tax Manager – Mark Davies & Associates Ltd