George Merrylees
- Partner
- Private Client
The Temporary Repatriation Facility (TRF): act now or regret it later
Former remittance basis users can take advantage of the TRF for the 2025/26, 2026/27 and 2027/28 tax years. But is this government concession actually beneficial in practice, or do the restrictions make it of limited use?
From 6 April 2025, the remittance basis of taxation was abolished and the “Foreign Income and Gains” or “FIG” regime was introduced. Under the FIG regime, a “new” UK resident pays no UK tax on FIG, even if brought to or used in the UK, for the first four tax years of UK residence. To be regarded as a new UK resident, the individual must not have been resident in the UK for 10 consecutive tax years prior to arrival.
Those who do not qualify for the FIG regime will find their annual global income and gains subject to UK income tax and capital gains tax at their applicable marginal rates (subject to any available relief under a double tax treaty). This is a significant change for those who were previously able to claim the remittance basis which shielded their FIG from UK tax unless it was brought to, used in, or enjoyed in the UK.
Acknowledging the significant impact such a change would have, the government introduced some concessions. One of those concessions is the Temporary Repatriation Facility or “TRF” which is the focus of this article.
What is the TRF?
The TRF allows former remittance basis users to designate amounts derived from FIG arising before 6 April 2025 (previously shielded by the remittance basis) so that they are taxed at a reduced rate. That reduced rate is 12% during the 2025/2026 and 2026/2027 tax years and 15% during the 2027/2028 tax year. This compares to a rate of up to 45% on foreign income and 24% on foreign gains if the TRF is not claimed. Once a TRF designation has been made, and the TRF charge has been paid, the individual can remit the designated amount to the UK without any further charges.
The key benefits
Freedom to remit at a later date
Providing the TRF designation has been made correctly and the TRF charge has been paid, the individual can choose the tax year in which to remit the designated amount to the UK. This can be after 6 April 2028 (when the TRF closes).
Non-liquid assets
It is also possible to designate non-liquid assets under the TRF where such assets have been purchased using FIG arising in years in which the individual claimed the remittance basis. The designated amount will rise to the top of the ordering rules, meaning that it will be treated as being remitted in priority to other funds when disposal proceeds are remitted to the UK.
Mixed funds
It is possible to designate amounts of uncertain origin under the TRF. The TRF may be useful where clean capital has been tainted with pre-6 April 2025 foreign income and gains as the individual can elect for this to be a designated amount under the TRF and pay a reduced rate of 12% or 15% tax and then have peace of mind that they can bring the designated funds into the UK at any point thereafter without any further UK tax charges. Essentially, there is an opportunity to convert funds to clean capital at a cost of 12% or 15%.
Trust income and gains
The TRF can be used in relation to pre-6 April 2025 FIG in a non-UK trust. Where a UK resident beneficiary receives a distribution after 6 April 2025 that is matched to pre-6 April 2025 FIG, the beneficiary can elect under the TRF to pay tax at 12% or 15% on the distribution instead of up to 45%. This is only possible where the beneficiary has claimed the remittance basis previously and where funds actually leave the trust (i.e. you cannot designate funds retained within the trust under the TRF).
The possible traps
Despite the benefits, the TRF does contain a number of important limitations.
No relief for foreign tax paid
It is not possible to set off any foreign tax paid against the TRF charge. For example, if you have paid tax on a designated amount in France, you cannot set the French tax against the TRF charge. Instead, you will pay both the French tax and the TRF charge. Where foreign tax is payable, it may therefore be better to consider using any relevant double tax treaties rather than the TRF.
Payment of the TRF charge could be a taxable remittance
Even if the TRF charge is paid directly to HMRC using FIG which arose before 6 April 2025, such payment will be a taxable remittance unless the TRF charge is paid from the designated amount.
Record keeping
It is necessary to maintain records to support the TRF claim. As mentioned above, the designated funds do not need to be remitted in the year in which the designation is made. Records should be kept to ensure the claim can be supported when such funds are eventually remitted.
What should you do next?
Our experience is that uptake of the TRF has been low despite it being a generous regime, particularly for those holding complex mixed funds. It is unclear whether it is the limitations set out above that are deterring uptake, or whether individuals simply have not decided whether or not to leave the UK: there is of course no point in using the regime if you will leave the UK in any event. The key point is that the TRF is time limited and the 12% rate will only be available for one more tax year (2026/27) albeit taxpayers have twelve months from the tax return filing date to make the election. Former remittance basis users should therefore consider the application of the TRF as soon as possible. Where available, it provides a great opportunity to “tidy up” previously unremitted FIG arising before 6 April 2025 and lock-in lower rates of tax. Depending on the circumstances, there are possible alternatives available to the TRF in relation to mixed funds. Please contact us if you wish to discuss this further.
This article is for general information purposes only and does not constitute legal advice or a comprehensive statement of the law. Specific legal advice should always be sought in relation to individual circumstances.
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