RDRM73600 - Temporary repatriation facility: Designating qualifying overseas capital: Exemptions and reliefs from further tax charges
Exemptions from further Income Tax charges
Capital Gains Tax main exemption
Reliefs in respect of matched capital payments
Investment of designated qualifying overseas capital
Tax reduction where TRF charge paid on the same amount following amendment or assessment by HMRC
Exemptions from further Income Tax charges
Paragraphs 10 and 11 Schedule 10 Finance Act 2025
When an amount of designated qualifying overseas capital is remitted on or after 6 April 2025, the amount is exempt from any Income Tax charges on that remittance.
This includes amounts, at paragraph 10(1), that are qualifying overseas capital under paragraph 2(2) or (5) of Schedule 10 (see RDRM72200) and under paragraph 6(1)(b) of Schedule 10 (see RDRM72500). These are known as the ‘remittance provisions’.
Paragraph 10 also provides an exemption from Income Tax for income that is treated as arising to an individual in the tax years 2025-26 to 2027-28 as a result of a benefit received by them being matched with income of a person abroad under the Transfer of Assets Abroad (ToAA) provisions (see INTM600000 for more details on the ToAA provisions) in two different circumstances. Firstly, where the income that is matched with the benefit had arisen under prior to 2025-26 and the amount is designated, being qualifying overseas capital under paragraph 6 of Schedule 10. Secondly, when the income that is matched with the benefit arose in the 2025-26, 2026-27 or 2027-28 tax year and the amount is designated, being qualifying overseas capital under paragraph 7 of Schedule 10 in respect of capital gains of the person abroad that would otherwise have been matched with the benefit under the capital payment matching regime in section 87 TCGA 1992.
Paragraph 11 applies where an amount of income is treated as arising to an individual under section 732 ITA 2007 (transfer of assets abroad – benefits charge) that is exempt from a charge to Income Tax as a result of the exemptions in paragraph 10. Where the amount is qualifying overseas capital as a result of paragraph 6(1)(c) of Schedule 10, it amends the step calculation at section 733(1) ITA 2007 in respect of these exempt amounts – see INTM601740 for guidance on the step calculation.
Capital Gains Tax main exemption
Paragraph 12 Schedule 10 Finance Act 2025
When an amount of designated qualifying overseas capital, which is qualifying overseas capital under paragraph 2(2) or (5) of Schedule 10 (see RDRM72200), is remitted on or after 6 April 2025, the amount is exempt from any Capital Gains Tax charges on that remittance.
Reliefs in respect of matched capital payments
Paragraph 13 Schedule 10 Finance Act 2025
Where an individual designates an amount of a capital payment as designated qualifying overseas capital because of it being matched to gains under paragraph 3 (section 87 and 89 TCGA 1992 cases) or 5 (Schedule 4C cases), the corresponding chargeable gains deemed to accrue as result of the payment are reduced by the designated amount.
However, where an individual designates a capital payment which is matched to gains under paragraph 3 or 5, and that capital payment itself derives from pre-6 April 2025 foreign income or gains, paragraph 13 will not prevent a tax charge arising in respect of the pre-6 April 2025 foreign income or gains if the capital payment is remitted. This may occur, for example, where an individual settled an asset into a trust which they originally purchased using their pre-6 April 2025 foreign dividend income, and that asset is subsequently distributed to them from the trust.
In these circumstances, the capital payment represents both the pre-6 April 2025 foreign income from which it derives and the chargeable gains deemed to accrue as a result of the payment. Therefore, the capital payment represents two different types of qualifying overseas capital. One is an amount of qualifying overseas capital under a ‘remittance provision’ (see ‘Exemptions from further Income Tax charges’ section above) and one is an amount of qualifying overseas capital under paragraph 3 or 5 – see RDRM72400. In order to remit the capital payment without any further tax charge, a designation would need to be made on both amounts of qualifying overseas capital – see paragraph 8(2C) and (2D) of Schedule 10.
Example 1
Bernard is a UK resident and former remittance basis user. On 6 April 2021 he settled a painting into the B Trust which he purchased in Italy with £10m of his foreign dividend income. The B Trust is an offshore trust and Bernard is a settlor and beneficiary of the trust.
On 6 April 2026, the B Trust distributes the painting to Bernard offshore. This capital payment is matched to £1m of gains in the trust, and therefore a £1m chargeable gain is deemed to arise in 2026-27 (section 1(3) amount). Bernard decides to designate this amount on his 2026-27 tax return, so he makes a designation on the £1m and pays the TRF charge of £120,000.
Bernard decides that he wants to bring the painting to the UK to display in his home in Devon. Because the painting derives from £10m of his pre-6 April 2025 dividend income, if he brought the painting to the UK there would be a taxable remittance of £10m. There would not be a reduction for the £1m designation, because Bernard has designated £1m of qualifying overseas capital under paragraph 3 but has not designated any qualifying overseas capital under a ‘remittance provision’. If Bernard wants to bring the painting to the UK and not be subject to the usual tax rates on remittance, he will also need to make a designation on the £10m of qualifying overseas capital under paragraph 2(2) or 2(5) and pay the TRF charge of £1.2m.
If Bernard decided instead to make a designation on the £10m of qualifying overseas capital but not the £1m deemed chargeable gain, the designation of £10m would not prevent the £1m gain arising in the 2026-27 tax year, on which Capital Gains Tax would be due in full. Bernard would need to make two designations totalling £11m and pay the TRF charge of £1,320,000 to ensure there is no further tax to pay.
Investment of designated qualifying overseas capital
Although designated qualifying overseas capital itself may be remitted to the UK without incurring further tax charges, the designated qualifying overseas capital may trigger further tax obligations if it is used in a way that generates income or capital gains that would be subject to taxation.
Example 2
Jean is a UK resident and former remittance basis user. On 6 April 2025 she has £40,000 of foreign income from 2024-25 in an overseas bank account.
On 31 January 2027 Jean designates the £40,000 in her Self Assessment tax return for 2025-26 and pays the TRF charge of £4,800 (12% of £40,000). She chooses not to remit the designated qualifying overseas capital.
On 6 April 2027 Jean invests the £40,000 of designated qualifying overseas capital in an overseas stocks and shares portfolio. During the 2027-28 tax year the portfolio returns income of £5,000. This income is not exempt from further charge and is taxable on Jean at the usual Income Tax rate for 2027-28. It is also not capable of being designated because Jean can only designate amounts that arose before 6 April 2025 when she was subject to the remittance basis.
Tax reduction where TRF charge paid on the same amount following amendment or assessment by HMRC
Paragraph 8(6A) to (6C) Schedule 10 Finance Act 2025
There may be circumstances where an individual designates an amount during the TRF period that is found not to be qualifying overseas capital. Where this occurs, if the individual is out of time to amend the TRF designation, it could result in them paying both the TRF charge and an Income Tax or Capital Gains Tax charge on the same income or gain, because the TRF charge is not repayable (see paragraph 8(6) of Schedule 10).
For example, if a UK resident individual sells an offshore property in 2025-26 making a foreign chargeable gain, this gain amount does not meet the definition of qualifying overseas capital. Designating this amount and paying the TRF charge would not prevent a Capital Gains Tax charge arising on the gain, nor reduce the amount of Capital Gains Tax payable.
However, where HMRC makes an amendment or an assessment for any tax year up to and including the 2024-25 tax year, following a section 9A enquiry or a discovery of a loss of tax, there is a reduction available where the TRF charge has been paid on the income or gain brought into charge by the closure notice or assessment.
Where, as a result of that amendment or assessment, Income Tax or Capital Gains Tax is due on the same amount on which the TRF was paid, the Income Tax or Capital Gains Tax due is reduced by the amount of the TRF charge paid (but not below nil).
Where an amount of Income Tax or Capital Gains Tax has been reduced by a TRF charge, the individual is prevented from making any amendment or withdrawal of the designation that resulted in that TRF charge (see paragraph 8(6C)). This means that that TRF charge cannot be repaid. However, this does not prevent the individual amending any other part of their return or any other designations in that return.
Example 3
Elena is a UK resident and former remittance basis user. On 6 April 2025 she has £500,000 in an overseas bank account which she believes to be unremitted foreign income from when she was subject to the remittance basis. She decides to designate it under the TRF in 2025-26, paying the TRF charge of £60,000 (12% of £500,000) on 31 January 2027. The latest date she can amend this designation is 31 January 2028.
On 30 March 2028, HMRC discovers that in 2023-24, Elena remitted the £500,000 to the UK when she transferred the amount to her UK bank account. She intended to purchase an investment property in London but the sale fell through, so the following year she transferred the £500,000 back to her overseas bank account. However, she did not declare the £500,000 remittance n her 2023-24 tax return.
As Elena remitted the foreign income in 2023-24, HMRC makes an assessment under section 29 TMA 1970 and she is required to pay Income Tax at the usual rate for 2023-24 on the £500,000 remittance, in the amount of £225,000. However, because Elena designated the same £500,000 in 2025-26 and paid the TRF charge of £60,000, the £60,000 TRF charge is offset against the £225,000 of Income Tax due. Therefore, the additional tax to pay for 2023-24 as a result of the assessment is reduced to £165,000.
On 30 March 2030, HMRC discovers that in the 2025-26 tax year, Elena sold a UK property making a gain which was not declared in error, and this is brought into charge by way of an assessment. Elena would have been able to claim private residence relief in respect of part of the gain and so she makes a consequential claim for that relief. Although certain out-of-time actions (see SACM9005 for general guidance on consequential claims) are available to Elena following the assessment in relation to the 2025-26 tax year, Elena is prevented from amending or withdrawing the £500,000 designation, because the TRF charge paid on this designation was used to reduce her Income Tax liability for the 2023-24 tax year.
Example 4
Daveed is a UK resident and former remittance basis user. He has an overseas bank account which on 6 April 2026 contains £800,000. The account is a mixed fund which Daveed thinks is mostly pre-6 April 2025 foreign income and gains, but he has not kept sufficient records to fully identify the contents.
Daveed decides to designate all £800,000 in his 2026-27 tax return, to ensure that he can remit amounts from that account to the UK without any further tax charges. He pays the TRF charge of £96,000.
On 30 March 2029, HMRC discovers that Daveed received £29,000 of interest paid into that account for the 2025-26 tax year that should have been declared on his 2025-26 tax return. Instead of declaring and paying tax on this interest, Daveed designated this on his 2026-27 tax return as it formed part of the £800,000 in his overseas account and paid the TRF charge on this amount. However, Daveed’s bank interest for 2025-26 is not qualifying overseas capital.
It is too late for Daveed to amend or withdraw his TRF designation for 2026-27, however this does not prevent the arising basis tax charge due on the bank interest for 2025-26. HMRC issues an assessment bringing Income Tax of £13,050 into charge on the bank interest. There is no reduction available on the Income Tax due because HMRC is making an assessment in relation to a later tax year than 2024-25. Daveed is not able to make an overpayment relief claim or a consequential amendment in respect of the designation and the TRF charge paid in 2026-27 (see RDRM73320). He also cannot remit other undesignated funds in place of the £30,000 bank interest. If Daveed decides to designate any other funds held offshore he will need to ensure that they meet the definition of qualifying overseas capital.