The New FIG Regime – Transitional Rules

by John McLaughlin & Urooj Sheikh, in , , ,

This article should be read in conjunction with The New FIG Regime – What is it?

This article should not be regarded as tax advice. If you would like advice on your specific circumstances, please get in touch. 

Are there any transitional rules?

Whilst there are a few positives to the new FIG regime, many longer-term residents will have had their period of relief shortened and with restrictions on accessing their foreign money in the UK. To counter this, there are two transitional arrangements:

  • The Temporary Repatriation Facility (TRF) which will enable individuals who have previously claimed the remittance basis to transfer money to the UK at a reduced tax rate.
  • Capital Gains Tax Rebasing to reduce capital gains tax exposure on realised gains after 6th April 2025.

 

Temporary Repatriation Facility (TRF)

This will be available for three years from 6th April 2025. The TRF will encourage individuals to remit foreign income and gains arising from previous tax years when a remittance basis was claimed. This will allow individuals who previously claimed the remittance basis to “designate” amounts of unremitted income and/or gains from earlier years and pay a tax charge with their tax return. For individuals with a long-term intention to remain in the UK, this could be a good opportunity to access offshore funds.

To utilise the TRF, an individual must have claimed the remittance basis for at least one year at any point up to and including the 2024/25 tax year. They must also be UK tax resident in the year that the designation of foreign income & gains is made.

The tax year in which the designation is made will determine the tax rate. The tax rate on designated income & gains under TRF will be 12% in 2025/26 and 2026/27. This will rise to 15% in 2027/28.

It is important to be aware that a foreign tax credit cannot be claimed for foreign taxes paid against the TRF charge.

There is no requirement for amounts to be remitted during the tax year in which it is designated, or in any later tax year. The TRF charge will be payable on designation and no further UK tax will be payable on this designated amount; regardless of the tax year it is remitted.

Starting from 2028/29, any remittances of income and gains to the UK that has not been designated and taxed under the TRF will continue to be taxed at full rates.

Identifying Foreign Income and Gains

The legislation does not yet provide full guidance on how to analyse foreign accounts for the purposes of the TRF. The current mixed fund ordering rules will be relaxed to make it easier for individuals to benefit from this lower rate.

As we understand it currently, any designated income can be transferred to the UK first without a further tax charge after which the normal remittance ordering will apply. However, the analysis of the foreign account can be completed on an annualised basis whereby all remittances and offshore transfers are treated as single transactions made on the last day of the tax year. This will make the process more streamlined and reduce consultancy fees for analysing offshore accounts. We expect more details to become available on this topic in due course.

Planning Opportunities

Previous remittance basis taxpayers who were considering a remittance to the UK may benefit from delaying the transfer until after 5th April 2025 to achieve a lower tax rate under the TRF.

However, they must careful consider whether to designate the income and pay a flat 12% tax charge without the ability to apply foreign tax credits. This would be double taxation where foreign tax and UK tax are both applied without relief. In some circumstances, the double taxation may still be less than the UK tax charge under a normal remittance even after factoring in foreign tax credits.

 

Capital Gains Tax Rebasing

For Capital Gains Tax purposes, UK residents who have claimed the remittance basis can rebase their personally held foreign assets to 5th April 2017 (which is an update from the original rebasing date proposed of 5th April 2019) on disposals made on or after 6th April 2025. Some conditions will need to be met:

  • The individual must not have been UK domiciled or Deemed UK domiciled at any time before the tax year 2025/26
  • The individual must have made a remittance basis claim for any one of the tax years from 2017/18 to 2024/25 – not including any year where the automatic remittance basis claim applied (i.e. where unremitted income and gains are less than £2,000)
  • The asset must have been held on 5th April 2017, and disposed of on, or after, 6th April 2025

 

For further guidance, please get in touch.