The reform of the UK's non-domicile regime on 6 April 2025 marked one of the most significant changes to personal tax in a generation.

For individuals who spent years navigating the remittance basis, the shift to a residence-based system raises an important question: what happens to the foreign income and gains that were previously sheltered from UK tax?

The government's answer is the opportunity to use the Temporary Repatriation Facility (TRF). For a limited period, it allows former remittance basis users to bring historic foreign income and gains into the UK at a flat, reduced rate of tax, rather than the rates that would otherwise apply on remittances. For many, it is a rare opportunity to simplify years of complex offshore record-keeping while reducing the tax cost of accessing their own wealth.

What is the TRF?

The TRF is a transitional relief introduced following the abolition of the remittance basis, running for three tax years: 2025/26, 2026/27 and 2027/28. During this window, eligible individuals can "designate" qualifying overseas capital, broadly being unremitted foreign income and gains that arose prior to 6 April 2025 under the remittance basis, and pay tax on the designated amount at a reduced rate.

The reduced rates are as follows:

• 12% for designations made in 2025/26 and 2026/27

• 15% for designations made in 2027/28

This compares favourably to the rates that would otherwise apply to a remittance of historic foreign income or gains, which could be as high as 45% for income and 24% for capital gains under normal rules. Once qualifying overseas capital (which can include overseas assets bought with unremitted income and gains) has been designated and the TRF charge paid, the funds and/or assets can be brought to the UK immediately or at any point in the future without triggering a further UK tax charge.

How the TRF can simplify affairs

Many long-term users of the remittance basis have built up years, sometimes decades, of mixed funds across multiple overseas accounts, each with its own blend of clean capital, foreign income, and foreign gains. Establishing the precise composition of a remittance under the ordinary mixed fund rules can be a significant undertaking, and the risk of an unexpected tax charge on an innocuous transfer is a common source of anxiety.

The TRF offers a practical solution to this problem. Amounts designated under the TRF are treated as "TRF capital", which takes priority in the mixed fund ordering rules ahead of any other income, gain, or capital, regardless of the tax year in which it originally arose. In practice, this means that once designated, individuals can draw on that capital with certainty of no further UK tax charges, without having to trace the source and tax year of each unremitted element within a mixed fund. Additionally, it allows you to draw on the funds at the reduced tax rate as opposed to generally being deemed to remit the funds subject to the highest rates of tax first.

For those who have found the ongoing record-keeping burden of the remittance basis frustrating, this presents a genuine opportunity. By designating amounts under the TRF, a significantly reduced rate of tax is available whilst also removing the uncertainty and administrative burden of managing historic mixed funds.

Additionally, the TRF does not require funds to be physically brought to the UK at the point of designation. The designation and the remittance are separate steps, which gives clients flexibility to plan the timing of the actual transfer of funds as part of their broader wealth strategy, while locking in the reduced tax rate.

Distributions from offshore trusts

For those who have historically settled or benefited from offshore trusts, the TRF provides further opportunities.

Income, gains, and offshore income gains (OIGs) that arise within offshore trust structures are generally held within different "pools", depending on the specific circumstances of the trust. These ‘pools’ of income, gains, and OIGs are matched to distributions made to UK resident beneficiaries and give rise to a UK tax charge at the point of being matched.

Where a UK resident individual has previously claimed the remittance basis, the TRF can be extended to capital distributions and/or benefits received during the TRF window that are matched to pre-6 April 2025 accumulated income, gains, and OIGs. This means a capital payment or benefit from an offshore trust received during the TRF window can be designated and taxed at the reduced 12% or 15% rate, rather than at the beneficiary's marginal rate of income tax (up to 45%) or the capital gains tax rate that would otherwise apply on a matched distribution (up to 38.4% where supplementary charges apply).

This has practical implications for trustees and beneficiaries alike:

• Trustees may wish to consider the timing of distributions and whether beneficiaries will require the funds for future UK funding. If so, making capital distributions during the TRF window can significantly lower the tax bill.

• Income distributions themselves will not qualify for the TRF and will remain taxable as foreign income at the recipient’s marginal rate. However, capital distributions and certain benefits from non-resident trusts may qualify. Trustees may therefore wish to consider whether they have the power to appoint capital and structure distributions in an appropriate manner.

Given the complexity of the matching rules, along with settlor-interests and the availably of the TRF, this is an area where the detail matters. We would always recommend a full review of the trust's historic income and gains position before any distribution strategy is finalised.

Some key points to consider

The TRF is attractive, but it is not automatic, and a few practical points are worth bearing in mind:

• Eligibility depends on the individual having been subject to the remittance basis in at least one UK tax year prior to 2025/26, and on being UK resident in the tax year the designation is made.

• Designation is made through an election in the Self-Assessment Tax Return, and can be made or amended within the normal amendment window, being the second 31 January following the end of the relevant tax year.

• Foreign tax paid on the underlying income or gain cannot be credited against the TRF charge, though deduction relief may reduce the amount that needs to be designated.

• The TRF is not always the correct answer. Due to being a flat rate of tax on a potential mixture of income and gains, it is unclear whether tax paid under the TRF will be an allowable tax credit in other jurisdictions and may therefore lead to double taxation issues.

• The long-term plans and funding requirements need to be taken into account when considering a TRF claim. For instance, if the individual will shortly be leaving the UK, they will likely want to manage their TRF designations to avoid paying tax on funds that are never required to be remitted.

How we can help

For clients with significant historic offshore wealth, whether held personally or through trust structures, the current window offers a genuine chance to simplify years of complexity and reduce the tax cost of bringing that wealth onshore. As with all reliefs of this kind, the right approach depends on the specific circumstances. If you would like to discuss how the Temporary Repatriation Facility might apply to your circumstances, please get in touch.