Timing is everything when it comes to a TRF claim!
6th June 2025
Posted in Articles by Andrew Marr
Non-domiciled, long-term UK residents looking to take advantage of the Temporary Repatriation Facility (‘TRF’) should consider carefully how a TRF claim may interact with their wider estate planning/gifting strategy. Careful timing of the claim could reduce the overall tax payable.
Example
Celine has a French domicile of origin and moved to the UK in 1980 with her British partner, Colin, when she was 30 years old. She has been UK resident ever since. She has a French bank account containing £1m of cash, comprising £900,000 of unremitted historical gains which were realised in a year in which she claimed the remittance basis, and £100,000 of interest income that has been taxed on an arising basis (and so by itself would be ‘clean funds’). Celine never expected to be able to use these funds in the UK without suffering capital gains tax (now 24%) on the unremitted historical gains. For years, she has therefore only used the funds while abroad.
TRF opportunity
Celine has recently heard about the TRF – a transitional relief introduced to soften the blow of the abolition of non-domiciled status for tax. Broadly, the TRF is a flat rate charge on historical untaxed foreign income and gains (i.e. those which have arisen in a year in which the remittance basis has been claimed), which, once designated, can be remitted to the UK later, free from any further tax. The TRF is available for three tax years at the following rates:
12% in 2025/26 and 2026/27
15% in 2027/28
Celine is keen to take advantage of the TRF opportunity as the funds held in France would be welcome to support her and Colin in their retirement. However, as she is now 75, she is also considering the potential inheritance tax (IHT) exposure of her estate. She has therefore decided that she will gift £500,000 of the funds in her French account to her two adult children (£250k each) in the knowledge that these gifts would fall out of her estate for IHT purposes after seven years. She has calculated that by making a TRF claim in 2025/26 on the full amount of historical untaxed gains, she will be able to remit everything from the account and pay just £108,000 of tax (£900,000 at 12%). This would leave her with £392,000 of cash, after paying the TRF charge and making the proposed gifts to her children.
However, there is a better way to achieve her objective.
Avoiding a remittance
The ‘belt and braces’ way to make a gift and ensure it is not a remittance by Celine, is for her to make the gift to her children offshore (i.e. from her French account to her children’s offshore accounts). As such, each gift would be treated as a pro-rata transfer of the overall fund. In other words, each £250,000 gift would comprise £225,000 of historical unremitted gains and £25,000 of ‘clean’ funds. Celine would then be left with £500,000 in her French account, comprising £450,000 of unremitted gains and £50,000 of ‘clean’ funds. We should emphasise that Celine cannot benefit in any way from any money that she gives away, otherwise any such benefit would be taxable at full capital gains tax rates.
A question of timing
You may think that it should be possible to simply do everything in 2025/26 and then pay the TRF on the £450,000 of unremitted funds remaining after the gifts, but unfortunately, things are not as straightforward as this.
Although a TRF designation is made through a self-assessment tax return after the year end, the designation is treated as having taken place at the start of the tax year to which the return relates (i.e. on 6 April 2025 in the above example). Providing Celine does not immediately need access to the funds, she may wish to consider delaying her TRF claim to 2026/27 (the lower 12% rate will still apply) so that she can make the gifts to her children in 2025/26. Celine could then make a TRF designation in the following year on the remaining £450,000 of unremitted gains, resulting in a reduced tax charge of £54,000 (£450,000 at 12%). This would leave her with net cash to bring into the UK from 6 April 2026 of £446,000 (£54,000 more than doing things the ‘bad’ way above).
The position is different if everything is done in the same tax year because of the rule about the TRF designation applying on 6 April. Let us assume that Celine makes the £500,000 of gifts in 2025/26 and then brings the remaining £500,000 into the UK and makes a £450,000 TRF designation in respect of it. The analysis would then be as follows:
1. Celine makes a partial TRF designation on 50% of the unremitted historical gains as at 6 April 2025 (i.e. on £450,000).
2. The £500,000 gifts would then comprise £50,000 of ‘clean’ funds, £225,000 of unremitted gains, and of £225,000 of designated TRF capital (which would be a waste).
3. Therefore, the £500,000 remaining in Celine’s account after making the gifts would contain £50,000 of clean funds, £225,000 of designated TRF capital and £225,000 of unremitted gains that will be taxable on remittance to the UK at 24%.
4. Total tax payable would be £450,000 at 12% (the TRF designation) and £225,000 at 24% (remittance of the remaining untaxed gains from the account) which is £108,000 – the same liability as the ‘bad’ way.
If Celine needed to access the account in 2025/26, an alternative option would be for Celine to transfer £500,000 of funds into a new overseas account before making the gifts from her original account. She would then be able to make a partial TRF designation specifically on the funds transferred to the new overseas account, known as a TRF capital account.
Forbes Dawson view
Whilst it may be tempting to jump in and claim a new valuable tax relief, tax-payers should take a step back and consider their objectives holistically. A delay of a TRF claim has saved £54,000 of tax in the above case and has the added benefit of postponing payment of the TRF charge by 12 months to 31 January 2028 (the due date for Celine’s 2026/27 tax return). Individuals seeking to take advantage of the TRF should therefore consider their wider estate planning strategy before rushing in to make a TRF claim and remitting funds in 2025/26, particularly because the lower 12% rate applies for the first two years of the TRF. Great care should therefore be taken to ensure transactions are made in the correct order and in the correct years to maximise the efficiency of a TRF claim. However, for some people, it will make sense to give away all of their offshore assets and thus sidestep the TRF altogether.
