Trustees of settlements which are not tax resident in the United Kingdom should ascertain whether the deadline of 31 January 2010 has been triggered for making a rebasing election for all trust assets.

Trustees of settlements which are not tax resident in the United Kingdom have until 31 January 2010 to make a rebasing election for all trust assets ifthey have triggered the election in the UK tax year 2008/2009. For trusts which have not yet triggered the election, or which have triggered it in 2009/2010, it is possible to make the election in any event but the 31 January 2010 deadline will not apply.

What is Rebasing?

Broadly speaking, a rebasing election will affect all trust assets (and assets of certain underlying companies) which were owned by the trust on 5 April 2008. On a later disposal of any of the affected assets, only the proportion of the gain which accrued from 6 April 2008 will be taxable if matched against a capital payment made to any beneficiary who is UK resident but non-UK domiciled at the time the distribution is made.

The legislation creating the rebasing election came into effect for tax years starting from 6 April 2008 and requires that once the election has been triggered, it must be made within the prescribed deadline. If it is not made by that deadline, the ability to make it is lost. The election need only be made once, but is irrevocable once made.

Has the Election been Triggered?

The election must be made on or before the first 31 January following the end of the first tax year (beginning with tax year 2008/2009) in which a triggering event has occurred. There are two possible triggering events:

  • A capital payment is received in the tax year by a beneficiary of the trust who is UK resident in that year.
  • In the tax year the trustees transfer all or part of the settled property to the trustees of another settlement and, broadly speaking, the transfer is made otherwise than for consideration equal to or exceeding the market value of the property transferred.

If either of the above events occurred in the UK tax year 2008/09 then the deadline for making the election has been triggered and any affected trustees must consider whether to make the election by 31 January 2010. If the triggering event has occurred but in the 2009/10 tax year, trustees will have until 31 January 2011 to make the election.

Who is Affected?

Rebasing affects a settlement for a tax year if the trustees of the settlement are neither UK resident nor ordinarily resident in the United Kingdom in that tax year. This will apply to all non-UK resident trusts, but in practice only those with beneficiaries who are UK resident but non-UK domiciled are likely to benefit from making the election. If a beneficiary is UK resident and UK domiciled the election will not reduce their tax liability on a subsequent capital payment.

Only the trustees can make the election. A beneficiary cannot make it.

Should an Election Always be Made?

There is no tax disadvantage to making the election as the rebasing mechanism cannot increase the pool of gains in the trust, nor does it wipe out unrealised historic losses.

Trusts which do not currently have any UK resident beneficiaries should still consider whether to make the election for any future UK resident beneficiaries.

Failure to make the election where it would have been beneficial to do so may leave the trustees open to the risk of claims from beneficiaries who find they have a higher liability to UK tax.

What Steps Should Trustees Take?

Any trustees affected by the election should consider whether either of the triggering events took place in the 2008/2009 tax year. If there is any uncertainty, advice should be sought. Where a triggering event has occurred, the trustees must decide whether to make the election by the 31 January deadline. The election is made on Form RBE1 available from the UK Revenue website by setting out the requested details including the name and date of the settlement, name and address of the trustees, and the date of the triggering event if this has occurred.

It is possible to make the election even if it has not been triggered. The UK Revenue guidance indicates that pre-emptive elections will be permitted, however there may be reasons for wanting to delay making the election until a triggering event actually occurs. These reasons may include a wish not to disclose more information to the UK Revenue than is required. On receipt of a rebasing election, the UK Revenue will issue a request for further information from the trustees and Form 50(FS) requesting details of capital gains and capital payments.