Temporary Repatriation Facility for trusts not as TeRriFic as first thought?
4th June 2026
Posted in Articles by Andrew Marr
The issue
Within the rewrite of the taxation of non-UK domiciliaries (non-doms) a valuable relief called the Temporary Repatriation Facility (TRF) was introduced to encourage previous non-doms to bring their money into the UK at lower rates of tax. It allows a reduced rate of tax to apply to pre-5 April 2025 foreign income and gains remitted to the UK on or after 6 April 2025, as well as a reduced rate of tax on certain offshore trust distributions.
One radical change affecting offshore trusts is that any distribution to a UK resident beneficiary, whether made in the UK, or to an offshore bank account, is now subject to UK tax. In other words, trust distributions are taxable on a worldwide basis.
TRF applies a much-needed relief to the UK resident, non-dom, beneficiary who could previously receive tax-free distributions offshore. This relief reduces the tax rate applicable to trust distributions for three years (2025/2026 – 2027/2028) for beneficiaries who have historically claimed the remittance basis of tax at any time up to 2024/2025. This Tax Bite concentrates on how this relief applies to trust distributions after 5 April 2025 only and outlines a little-known trap that could potentially double the rate of tax on such distributions.
The detail
TRF enables trust distributions to be taxed at a rate of 12% for 2025/2026 and 2026/2027 and 15% for 2027/2028 if certain conditions are met. The distributions must be:
- Capital in nature (defined by the legislation)
- Made after 5 April 2025
- Made up of historical foreign income and gains arising to the trustees prior to 5 April 2025
- Paid to a beneficiary who has previously claimed the remittance basis
To apply these rules, the beneficiary must receive a trust distribution in either 2025/2026, 2026/2027 or 2027/2028, then nominate the amount of the historical foreign income or capital gain on that year’s tax return and pay the reduced rate of tax for that year. Unlike the TRF for foreign income and gains derived on personal assets, the receipt of the funds from the trust must be in the same year as the nomination is made. This relief can apply to settlors (provided they are in the class of beneficiaries) and other beneficiaries.
There is a complex matching system for trusts that determines how the distribution is taxed when received by a beneficiary. Generally, the payments are first matched to historical trust income and then to trust offshore income gains and then to trust capital gains. However, this is overridden for TRF, with the nominated foreign income or gains sitting at the top to be matched in priority to any payment made.
The trap
What hadn’t been fully understood, until HMRC clarified their view, is that not only can the historical foreign trust income and gains be subject to tax and require a nomination, but so can the historical income and gains within the value of the initially settled property. This is because the distribution is:
- matched to the trust’s historical foreign income and gains and
- is also derived from the settlor’s foreign income and gains when settling the trust, which are taxable if remitted to the UK.
It was previously thought, prior to the November 2025 budget, that any nomination would ‘clean’ the distribution entirely, with receipts taxable at 12% or 15% depending upon the year of receipt. However, HMRC clarified that two separate nominations would be needed and that this applies retrospectively to all distributions after 6 April 2025.
Therefore, if the assets originally settled were not ‘clean’ capital and they were acquired originally by the settlor, say, by using the proceeds from the sale of a foreign asset that was sold at a gain, these gains could be subject to tax when a distribution is made. To avoid normal rates of tax, two nominations will be required in such a case as set out below.
Example
Nonna, a UK resident non-dom settled £1m of cash into an offshore trust in 2010. The cash was made up entirely of foreign dividend income that arose when Nonna was UK resident. Nonna elected for the remittance basis to apply to avoid being taxed on this income as it arose.
The trust invested the funds in an offshore portfolio which grew to £3m as at 5 April 2025, comprising £1.1m of foreign income, £900,000 of foreign capital gains and £1m of original capital settled. No distributions have been taken from the fund historically.
The trustees decide they will distribute £2m from the trust in 26/27 to Nonna in the UK. To attract the lower rates of tax, Nonna must nominate:
- £1.1m of trust foreign income
- £900,000 of trust foreign gains
- £1m of her own foreign income
If the nomination is made on her 26/27 tax return, she will be subject to tax of £360,000 in that year. This gives an effective rate of 18%.
If the foreign income had arisen prior to Nonna becoming UK resident, that income would never be taxable, and no record needs to be retained of it. If the trust distribution was made to Nonna offshore, the £1m would not be taxable unless it was later remitted to the UK (but points one and two would still be taxable).
Forbes Dawson view
Those of us who remember the halcyon days of UK resident non-doms setting up settlor-interested offshore trusts, will recall the ease with which foreign property was transferred into trust without real regard for the value or the make-up of the asset acquired. In other words, there was typically limited investigation into whether it comprised historical offshore income or was derived from gains made on foreign assets, as any trust distributions to the non-dom settlor could be made offshore without UK tax. The asset was excluded property so there were no IHT forms required, and so no need to request market valuations. All in all, while the tax advice needed to be robust and the tax position of the settlor established, there was very little scrutiny of the assets settled and what they were comprised of.
It will therefore be difficult to find out the historical information required to fully comply with these rules, particularly for the older trusts. Obtaining full information of the trust foreign income and gains is often difficult enough, never mind the position of the assets settled onto trust. Time will tell how HMRC deals with these in practice.
