The deadline for non-UK resident trustees to make a "rebasing" election is 31 January 2010 where either:

  • a UK resident beneficiary has received a capital payment (see below) in 2008/09 or
  • they have transferred some or all of the trust fund to another trust in 2008/09.

A rebasing election can be made whether or not either of these triggering events has occurred.

If the election is to be made, it has to be made by the trustees, not the settlor or the beneficiaries, though the trustees will no doubt wish to consult with them in advance.

Once the election has been made, it is irrevocable.

Background

Finance Act 2008 altered the treatment of gains realised in offshore trusts with UK residents but non-domiciled settlors and beneficiaries. Previously, capital gains made by offshore trusts were entirely tax free, even if the gains were enjoyed in the UK as long as the beneficiary was non-UK domiciled. Trust gains made after 5 April 2008 are subject to the new rules. These charge tax on capital payments received by non-domiciliaries unless the remittance basis applies. For the remittance basis to apply, the capital payment must be received offshore (and not be remitted to the UK) and, in many cases, the beneficiary receiving the capital payment has to pay the £30,000 remittance basis charge to avoid liability.

Effect of rebasing election

The effect of the election is that on a disposal of a trust asset after 5 April 2008, the gain on realisation is divided into the pre 6 April 2008 and post 5 April 2008 elements. The old (favourable) CGT rules apply to the pre 6 April 2008 element of the gain, so this element is not subject to CGT when matched with a capital payment made to a UK resident non-domiciled beneficiary, whether or not that beneficiary is a remittance basis user and whether or not the capital payment is received in or remitted to the UK. The post 5 April 2008 element of the gain is subject to the new rules, so will be subject to tax unless the remittance basis applies.

If the asset realised at a gain has not increased in value since 5 April 2008, then the entire gain benefits from the old rules.

The rebasing election applies to all trust assets held on 6 April 2008 and to all assets held in underlying non-UK companies. The rebasing election does not apply to capital payments made to UK domiciliaries. Therefore, the full amount of any gains realised after 6 April 2008 and matched with such capital payments will be subject to CGT.

The rebasing election only operates in favour of UK resident non-domiciled beneficiaries. However, by careful planning, if there are UK domiciled and non-domiciled beneficiaries, it should be possible to arrange capital payments so that, indirectly, the UK domiciled beneficiaries benefit from the rebasing election.

Capital payments

Note that a capital payment is not confined to distributions of capital, but also includes conferring benefits on less than commercial terms, eg the provision of accommodation, the use of chattels or a loan, in each case on less than commercial terms.

Disclosure

The rebasing election must be made on form RBE1 (available on HMRC's website). The only disclosure this form requires is the name of the trust, the date on which it was created, details of the trustees and the date of the triggering event (capital payment or transfer to another trust) (if any).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.