RDRM74300 - Temporary repatriation facility: Scope of designation: Assets derived from foreign income and gains
Valuation of asset designations
Assets deriving from the same foreign income and gains
Overview
Designations under the temporary repatriation facility (TRF) are not limited to cash held overseas, which means that it is possible to make designations in relation to non-liquid assets. An individual may not have their funds readily available if they have invested or re-invested their pre-6 April 2025 foreign income or gains which arose during a year they were subject to the remittance basis. If an individual wants to designate an asset which is qualifying overseas capital, it doesn’t need to be disposed of in order to be designated.
Valuation of asset designations
Paragraph 8(2A) Schedule 10 Finance Act 2025
In many cases, the asset from which an individual’s pre-6 April 2025 foreign income or gains derives will have changed in value from the original acquisition; it may have risen or fallen in value. However, the amount that must be designated, in order to fully designate the asset, is the amount of pre-6 April 2025 foreign income and gains from which the asset derives. This could be foreign income and gains themselves that were used to acquire and enhance the asset, or sale proceeds from the disposal of a previously held asset that derived from foreign income and gains.
In cases where it is not known what has been used to acquire or enhance the asset (see RDRM72300 for uncertain amounts) and the individual wants to fully designate it, the costs of acquisition and enhancement should be used for designation purposes.
This means that individuals will not have to obtain a valuation of an asset in order to designate it. Rebasing of an asset to its 2017 value for CGT purposes, available to certain former remittance basis users (see CG manual) will also not impact the designation.
As with amounts in a bank account, an individual can make a partial designation in relation to an asset. Where only part of the invested amount has been designated and the asset is a mixed fund, as with any other designation, the designated amounts will be remitted in priority to any other funds from which the asset derives when disposal proceeds are remitted (see RDRM75100 for further information about mixed funds).
Example 1
Imani arrived in the UK on 6 April 2011. She has been subject to the remittance basis for all tax years up to 2024-25. Imani has never made a foreign loss election under section 16ZA TCGA 1992. On arrival in the UK Imani owned shares in a private German company.
On 30 April 2011 Imani sold her overseas shares in the German company for £6m realising a gain of £5m. The disposal proceeds were paid into an overseas bank account.
On 3 May 2011 Imani used half of the money in her account (£3m) to purchase a property in Tuscany which she intended to move to once she left the UK. The £3m used to purchase the Tuscany property comprises £2.5m gain and £500,000 clean capital.
On 6 April 2015 Imani sold her property in Tuscany for £6m and used all of the proceeds to purchase a new property in Leipzig for £6m. The £6m used to purchase the Leipzig property comprises £2.5m from the gain on the shares, £3m from the gain on the Tuscan property and £500,000 clean capital.
In 2016, Imani spends £100,000 of her untaxed foreign dividend income from the 2015-16 tax year on an extension to her Leipzig property. By 5 April 2017 the property has risen in value to £8m.
On 6 April 2025 Imani decides that she would like to remain in the UK permanently and intends to simplify her affairs by selling all of her overseas assets and bringing the funds to the UK. By 6 April 2025 her Leipzig property is worth £10m.
Imani is not certain when she will be able to sell her property but expects that it will be after the TRF period has ended.
Imani’s Leipzig property derives from a total of £5.6m of foreign income and gains: £2.5m relates to the gain on the sale of her German shares, £3m relates to the gain on the property in Tuscany and £100,000 relates to the dividend income which funded the extension. Imani makes a designation of in her 2025-26 tax return and pays the TRF charge of £672,000 (£5.6m x 12%) on 31 January 2027.
When Imani sells her Leipzig property, she will be able to bring the sale proceeds to the UK without any further tax charge on the remittance of the amounts used to acquire and enhance the property. Any gain on the future sale will be taxed on the arising basis, should Imani remain UK resident, as the remittance basis is no longer available.
Example 2
Adjin arrived in the UK on 6 April 2014. He has been subject to the remittance basis for all tax years up to 2024-25. Adjin has never made a foreign loss election under section 16ZA TCGA 1992. On arrival in the UK Adjin owned shares in a private Croatian company.
On 30 April 2014 Adjin sold his overseas shares in the Croatian company for £8m realising a gain of £6m. The disposal proceeds were paid into an overseas bank account.
On 3 May 2014 Adjin used half of the money in his account (£4m) to purchase a painting from an offshore dealer, which he understands to have been painted by Goya, kept at his apartment in Zagreb. The £4m used to purchase the painting comprises £3m gain and £1m clean capital.
By 5 April 2017 Adjin has discovered that his painting was actually painted by Velázquez and not Goya, and as such its value has fallen to just £1m.
On 6 April 2025 Adjin decides that he would like to remain in the UK permanently and intends to simplify his affairs by selling all of his overseas assets and bringing the funds to the UK. By 6 April 2025 his painting is still worth £1m.
Adjin decides to wait a few years to see if the painting will increase in value, though this is unlikely, but does not want to miss out on using the TRF, so he decides to make a designation election in the 2025-26 tax year.
Although Adjin’s painting is worth £1m it derives from a foreign gain of £3m from the sale of the French shares. If Adjin remitted the proceeds of the painting’s sale, or the painting itself to the UK without making a designation, this would result in a remittance of the £3m gain, because the painting, or any sale proceeds, derive from the original £3m gain used to purchase it (see RDRM35030).
Adjin decides that he will designate the painting, and to make a full designation, he designates £3m in his 2025-26 tax return and pays the TRF charge of £360,000 (£3m x 12%) on 31 January 2027..
If Adjin only designated £1m in his 2025-26 tax return and paid the TRF charge of £120,000, this would be a partial designation and the painting would remain a mixed fund, though now comprised of £1m of TRF capital, £2m of undesignated foreign gain and £1m clean capital. Therefore, if Adjin made no further designations on the asset and brought the painting to the UK in a year that the TRF was no longer available, he would have to pay tax at the usual rate on the remittance of the £2m gain.
Assets deriving from the same foreign income and gains
Paragraph 13A Schedule 10 Finance Act 2025
It is possible for the same foreign income or gains to be simultaneously represented by monies or assets in multiple places, where transactions have taken place that mean several assets could be derived from the same foreign income or gains (see RDRM33150).
Where an individual has designated an amount of qualifying overseas capital (‘amount B’), and later remits another amount (‘amount A’), amount A will be treated as designated qualifying overseas capital if:
- both amounts relate to the same foreign income or gains
- amount A would be taxable on remittance either because it arose before 6 April 2025 (see RDRM72200) or because it is treated as arising in the year of remittance under the settlements legislation (see RDRM72500)
This means that an individual will only be required to make a designation and pay the TRF charge in respect of the same foreign income or gains once, even though the income or gains may be represented in more than one amount of qualifying overseas capital.
This treatment applies only so far as Amount A relates to the specific foreign income or gains that Amount B derives from. Any foreign income and gains that amount A derives from that amount B does not also derive from will not be treated as designated qualifying overseas capital, unless a separate designation is made on these amounts.
Additionally, if amount A is higher than amount B, only part of amount A up to the value of amount B (providing they relate to the same foreign income or gains) is treated as designated qualifying overseas capital. Any excess will not be treated as designated qualifying overseas capital, unless a separate designation is made on this excess amount.
Example 3
Brigitte is UK resident and a former remittance basis user. In 2024-25 she decides to set up a French consultancy company, Elemique, and on 1 January 2025 she subscribes for 100% of the share capital. She uses £500,000 of her foreign employment income from 2023-24 to acquire the shares. Brigitte’s shareholding is therefore derived from her foreign employment income.
The £500,000 in funds held by Elemique are also derived from Brigitte’s foreign employment income, because the source of the company’s funds is the foreign income. As the company is a relevant person to Brigitte (see RDRM33030 for a definition of ‘relevant person’), she may need to consider whether there has been a remittance on which she is taxable if Elemique bring those funds to the UK.
On 1 May 2025, Elemique uses £300,000 of the £500,000 to buy an apartment in London for Brigitte to use. Brigitte decides to designate the £300,000 in her 2025-26 tax return, and she pays the TRF charge of £36,000 (12% of £300,000).
By 1 January 2028, Elemique has gained a good reputation and a varied client base, but Brigitte decides she wants to move on from consultancy. She sells her entire shareholding to a former colleague for £650,000, making a gain of £150,000. As the remittance basis is no longer available, Brigitte is taxable on the £150,000 gain in the 2027-28 tax year on the arising basis. She deposits the full sale proceeds into her UK bank account.
In depositing the sale proceeds (amount A) into her UK bank account, Brigitte would have remitted funds which derive from the £500,000 of foreign employment income that she used to acquire the shares. However, as Brigitte made a designation in 2025-26 which relates to the same foreign employment income (amount B), some of the sale proceeds will be treated as designated qualifying overseas capital.
In Brigitte’s case, amount B is £300,000, which relates to the same foreign income as amount A, however amount A is higher than amount B. Therefore, £300,000 is treated as designated qualifying overseas capital, and Brigitte is not required to make any further designation in respect of £300,000 or pay any further tax on remitting it to the UK.
The excess £200,000 is not treated as designated qualifying overseas capital by virtue of amount B, therefore Brigitte will either need to designate the £200,000 on her 2027-28 tax return or pay tax at the usual rate. To note, the £150,000 gain element of the sale proceeds is not treated as designated qualifying overseas capital because it is not the same foreign income or gains from which amount B derives and it did not arise before 6 April 2025.
It is possible that HMRC may enquire into Brigitte’s 2027-28 tax return, and so she will need to keep clear and comprehensive records to show that £300,000 of the remittance on 1 January 2028 (amount A) was not taxable in 2027-28 by virtue of the £300,000 of qualifying overseas capital relating to the same foreign employment income (amount B) having been designated in 2025-26.
If Brigitte designates the £200,000 on her 2027-28 tax return and pays the TRF charge, this means that if there is a remittance in future of the remaining £200,000 invested in Elemique with derives from the same foreign employment income, then this amount will be treated as designated qualifying overseas capital by virtue of the 2027-28 designation, and there would be no further tax to pay on remittance.
Example 4
Jordan is UK resident and a former remittance basis user. On 6 April 2026 he invests in a Belgian manufacturing company using £500,000 of his foreign gains from 2023-24 to acquire a majority shareholding. Jordan’s shareholding is therefore derived from his foreign gains, and the company is a relevant person to Jordan.
In 2026-27 the company transfers the £500,000 to the UK to purchase machinery for their UK subsidiary, and Jordan decides to designate the £500,000 in his 2026-27 tax return, paying the TRF charge of £60,000 (12% of £500,000).
On 6 April 2027, Jordan decides to sell a fifth of his shareholding, and receives £100,000 in sale proceeds as the value of the shares has remained the same. He uses the £100,000, along with £400,000 of (undesignated) foreign income from 2022-23, to purchase a collection of antique furniture from a Belgian auction house for £500,000. On 30 April 2027 he brings the collection to the UK to furnish his home in London.
Jordan therefore has a remittance of £500,000 in 2027-28 from which the furniture collection derives. Although the furniture collection (amount A) relates to the same foreign gains as the funds used to acquire the UK machinery (amount B), and amount A does not exceed amount B – they are both £500,000 – only £100,000 of amount A is treated as designated qualifying overseas capital. This is because amount B does not relate to the £400,000 of foreign income from which amount A derives; it only relates to the foreign gains, which represent £100,000 of amount A.
Therefore, Jordan is not required to make any further designation in respect of £100,000 of amount A or pay any further tax on the remittance of that element to the UK. He will either need to designate the other £400,000 on his 2027-28 tax return (which relates to the foreign income) or pay tax at the usual rate.
However, by virtue of the designation in 2026-27, Jordan’s remaining shareholding in the Belgian company, to the extent it derives from the same foreign gains, is now treated as designated qualifying overseas capital. Therefore, if he disposes of those shares in future, he can remit his sale proceeds without any further tax payable on the remittance.