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Autumn Budget 2024: Transitional Opportunities

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Those individuals who are UK residents with non-UK income or gains arising to them, but do not access the FIG regime, will be pleased to hear that transitional rules may help.

Rebasing

Non-domiciliaries who are currently claiming the remittance basis or have done so in the past, and personally hold non-UK assets on 5 April 2025, will be eligible to rebase those foreign assets to their value on 5 April 2017 where they held them on that earlier date. This measure is designed to reduce the Capital Gains Tax (CGT) arising upon a sale of the asset after 5 April 2025.

A similar rebasing opportunity was previously only available to eligible individuals who became deemed domiciled in the UK on 6 April 2017 under the 15 out of 20 year rule, and that will remain valid provided the individual continues to meet the requirements up to 5 April 2025.

The new rebasing will apply to individuals who remain neither domiciled nor deemed domiciled in the UK at 5 April 2025, and have formally claimed the remittance basis for at least one tax year between 6 April 2017 and 5 April 2025.

In a simple example, new rebasing is likely to potentially be helpful for non-domiciled individuals with foreign assets who became UK resident after 5 April 2010 for the first time (or following a sufficiently long period of absence) and have remained here. Any such people who have not previously claimed the remittance basis should seek advice as to whether they should now make a claim to secure rebasing.

For those involved in non-resident trust arrangements, any valid 2008 trustees’ rebasing election is expected to continue to apply when trust gains arising after 5 April 2025 are attributed to a settlor.

Temporary Repatriation Facility (TRF)

One disadvantage of the existing tax regime for non-domiciliaries is that income and gains which arose prior to 6 April 2025, and have escaped UK tax under the remittance basis, must be kept or spent outside the UK to preserve shelter. If the income/gains are otherwise remitted by a UK resident individual or Relevant Person, they become taxable at that point.

With the aim of encouraging such individuals to bring their wealth to the UK, a three-year Temporary Repatriation Facility (TRF) will be introduced on 6 April 2025, whereby such income and/or gains can be “designated” and remitted at a flat rate of UK tax. Provided the income and/or gain is validly designated and the TRF tax charge met, the actual remittance can take place at a later date if desired. This may be particularly helpful if the foreign income and gains have been reinvested into an illiquid asset for example, although in that scenario the issue of funding the tax liability from alternative available monies would have to be considered.

Distributions made from overseas trusts on or before 5 April 2025 may represent funds suitable for designation. In certain cases capital distributions made within three years after this date may also qualify. Detailed advice should be sought as the analysis will depend on the circumstances. My colleague Will Welch’s article delves into the impact of other measures in this Budget for settlors and beneficiaries of non-UK trusts.

Unremitted earnings which arose prior to 6 April 2025 and was subject to Overseas Workday Relief (OWR) will be eligible for designation under TRF. Helen Davis’s article covers the subject of OWR in more detail.

To avoid having to apply complex mixed funds rules, the amount of income/gain designated and present will be treated as available for remittance to the UK in priority to other sources. Further modifications to the mixed fund rules will apply to designated sums when analysing accounts containing such a source.

Designations made for the period between 6 April 2025 and 5 April 2027 will be charged to tax at 12%, whereas designations for the year ended 5 April 2028 will be subject to 15%. Offshore monies used to pay the TRF tax to HMRC will represent a remittance to the UK in all cases and will, therefore, need to be factored in to the designation.

Although Foreign Tax Credit Relief will not be available for non-UK taxes suffered on designated income or gains, there will effectively be relief by deduction because the designated amounts will be treated as net sums. Similarly, no credit will be permitted for remittance basis charges previously paid.

Remittances of income and gains which have not been designated will remain subject to tax as currently.

Any TRF designation must be made as part of the Self-Assessment tax return and by the normal filing date of 31 January following the end of the tax year to which it relates.  No further disclosure of the TRF remittance will then be required.  Whilst no supporting evidence or calculations for the designation will need to be included with the tax return, such documentation will need to be retained in case required as part of an HMRC enquiry.

Business Investment Relief (BIR) will continue to be available for investments up to 5 April 2028.  Foreign income gains invested under BIR will be eligible for TRF and rules will be introduced to address the interaction of these two provisions.

The TRF will not be available in respect of foreign income and gains arising during an individual’s period of temporary non-residence, although amounts that arose prior to the individual’s departure may be eligible, if relevant.

It will be possible for some individuals to be eligible for both the four-year FIG regime (see Alice Pearson’s commentary) and the TRF. This will most commonly apply to former UK resident non-domiciled remittance basis users who have left the UK and completed a period of at least 10 years’ non-UK residence before returning.

Contact Us
Please contact our Private Client Partner Alison Palmer if you would like any clarification on the transitional rules.

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