Tweaking the Temporary Repatriation Facility

Various newspapers have reported comments of Rachel Reeves at Davos that she is considering tweaks to the Temporary Repatriation Facility (TRF).

The TRF (in case you didn’t know) is an ability for non-doms to clean up past income and gains that have benefitted from the remittance basis by paying a flat rate of 12% in 2025/26 or 2026/27 or 15% in 2027/28. Once cleaned, it can then be remitted to the UK without triggering any further tax charges on that remittance.

The TRF was first announced by Jeremy Hunt in the March 2024 Budget. Labour’s Autumn Budget broadly followed the Conservatives’ original suggestions, but made some refinements – the most significant of which was extending the TRF to the income and gains of trusts that were later matched with capital benefits to the UK. This extension to trusts is, conceptually, slightly different to the main TRF and was originally conceived as a ‘Trust Scrappage Scheme’ – but it has now been amalgamated into a single regime. It is, however, probably helpful to think of the regime as being in two parts: the Main TRF and the Trust TRF as they have slightly different rules.

Labour’s refinements to the TRF appear to have taken on board detailed technical comments that the CIOT made – a paper that I had a large hand in drafting – and were broadly sensible – including, in particular, detailed thought as to how the TRF would work when foreign income and gains (FIG) is held in a mixed fund.

Rachel Reeves is now reported to be considering further tweaks. But what might these be? Here is my guess at what further tweaks could sensibly be made:

1. At present, the TRF only applies to UK residents. But non-residents may also have unremitted income and gains from previous residence periods (and might be concerned about them if they later resume UK residence). There seems no reason why we wouldn’t voluntarily accept 12% (or 15%) tax from non-residents. This seems an easy tweak to make.
2.  Similarly, the Trust TRF only applies to offshore trusts. But there are some onshore trusts (that were formerly offshore) that may have the same issue. Again, why wouldn’t we allow such trusts to benefit from the same ability to clean up the past?
3. Perhaps the biggest issue at the moment is that, alongside abolishing the remittance basis, the Finance Bill (Sch 9 para 5) then amends the definition of ‘remittance’ for the future! This seems entirely counter-intuitive. Presumably one reason for this is to encourage people to use the TRF (a stick as well as a carrot) for fear that they could otherwise trip up on the much stricter definition that will apply in the future. However, the changes are badly thought through and badly drafted. As currently drafted, merely having money in an offshore bank account could itself amount to a remittance to the UK! The Government should withdraw Sch 9 para 5 and, if it wishes, announce a consultation over the next year to get a more sensible definition drafted. The deterrent effect of a consultation would be just as strong a stick as the rushed changes here.
4. The current drafting also leaves a couple of gaps in situations where the same FIG exists in more than one place at the same time (I sometimes refer to this as Quantum FIG). Or, the opposite situation, where a particular asset or sum of money derives from more than one source of FIG. The rules here get into something approaching Alice-in-Wonderland territory. But, ignoring the detail, what is needed is simply a recognition that 12% is a rough-and-ready measure in any event – and if you pay it, it should clean up the past in full. Slightly more optimistically, the government could consider the following:
5. Allowing people to use unremitted funds to pay the 12% without that itself constituting a remittance. This is currently the case for the £30,000 or £60,000 remittance basis charge. It would make the TRF considerably more attractive.
6. Extend the Trust TRF to all beneficiaries – not just to beneficiaries who have in the past qualified for the remittance basis personally. There are still quite a few trusts for UK domiciliaries which would readily be wound-up but for the very significant CGT cost of doing so. Extending the Trust TRF so that all trusts could be wound-up would be a very sensible relaxation.
7. Reduce 12% to 10%. It isn’t entirely clear where 12% comes from, but psychologically it feels like a number that you have to think about, whereas 10% (being a round number) feels like a much better deal!

Clearly there are other proposals on the table, including a more detailed proposal for a tiered tax regime from Foreign Investors for Britain. Sadly, while their proposals have a lot of merit, I don’t sense that such a radical addition is currently being considered.

I may well be missing something here – and I do agree that the UK could design something better than the four-year new arrivers regime we have. But I sense that Rachel Reeves’ tweaks are not going anywhere near what some people are hoping for here. 

John Barnett, Burges Salmon