Introduction: The Rebasing Election Is Not What Most People Think
The rebasing election is the single most valuable transitional relief left to former remittance basis users, yet almost every American holding it misunderstands what it does. Furthermore, most commentary treats it as a purely British matter. That assumption costs US citizens in London real money. Specifically, the relief rewrites your United Kingdom capital gains position while leaving your American cost basis completely untouched.
At TaxYork we prepare cross-border returns for investment bankers, private equity principals and company owners across London and the Home Counties. Consequently, we see the same pattern repeatedly. Clients celebrate a slashed HMRC bill, then discover an unexpected balance due to the Internal Revenue Service months later.
What the Rebasing Election Actually Does
Schedule 11 of the Finance Act 2025 allows qualifying individuals to treat a foreign asset as acquired on 5 April 2017 at its market value on that date. Therefore, every pound of growth before that date simply disappears for British purposes. Importantly, the relief applies automatically where the conditions are met.
Here lies the first surprise. The statutory rebasing election is technically an election *out* of the relief, made on a disposal-by-disposal basis. Nevertheless, practitioners and clients alike use the phrase to describe the whole decision, so we use it in that broader sense throughout.
Why the Rebasing Election Lands Differently for Americans
British taxpayers face one calculation. Americans face two. Moreover, the two calculations use entirely different acquisition costs, which drives a wedge between the tax you pay in Britain and the credit you can claim in the United States. Accordingly, the rebasing election becomes a foreign tax credit question rather than a simple relief claim.
How the Rebasing Election Works Under Finance Act 2025
The abolition of the remittance basis on 6 April 2025 replaced a two-century-old regime with the four-year foreign income and gains rules. Meanwhile, Parliament softened the landing with two transitional measures. One is the Temporary Repatriation Facility. The other is rebasing.
Who Qualifies for the Rebasing Election
Three conditions govern eligibility. Firstly, you must have made a formal remittance basis claim under section 809B of the Income Tax Act 2007 for at least one tax year from 2017/18 to 2024/25. Secondly, you must not have been domiciled or deemed domiciled in the United Kingdom at any point before 6 April 2025. Thirdly, you must have owned the asset personally on 5 April 2017.
That second condition excludes a large group. Notably, anyone who became deemed domiciled under the fifteen-of-twenty-year rule between April 2017 and April 2025 falls outside the relief entirely. Additionally, an automatic entitlement to the remittance basis under the £2,000 de minimis rule does not count as a claim.
Which Assets Qualify
Only personally held non-United Kingdom assets qualify. Furthermore, the asset must have remained situated outside Britain throughout the period from 6 March 2024 to 5 April 2025, subject to narrow exceptions. Consequently, physical assets moved into the country during that window lose the benefit.
Assets held inside companies fall outside the relief. Similarly, British shares, British land and British-situs holdings never qualify, regardless of your residence history. For most of our clients, the qualifying pool consists of foreign listed portfolios, overseas property and shares in non-UK trading companies.
Automatic Relief, Not an Opt-In
HMRC applies rebasing without any positive claim. However, you may elect for it not to apply to a particular disposal, using the procedures in the Taxes Management Act 1970. That election is irrevocable once made. Therefore, the rebasing election deserves careful modelling before you sign a return, not afterwards.
The US Side: Why Your American Basis Never Moves
Nothing in Schedule 11 binds the Internal Revenue Service. Consequently, your United States capital gain is computed exactly as it always was, from original cost. This is the mismatch that drives every planning decision discussed below.
Original Cost Rules on Form 8949
American law grants no step-up on a change of residence, a change of domicile or a change of foreign law. Instead, you report proceeds against your historic cost basis on Form 8949 and Schedule D. Therefore, an asset bought in 2005 keeps its 2005 basis for American purposes even when Britain treats it as bought in 2017.
The long-term capital gains rates published by the IRS reach 20% for high earners. Additionally, the 3.8% net investment income tax applies above the statutory thresholds. Combined, sophisticated clients face 23.8% before any credit relief.
Foreign Tax Credits Shrink With Your UK Bill
British capital gains tax currently runs at 24% for higher and additional rate taxpayers, with a £3,000 annual exempt amount. Those capital gains tax rates and allowances sit marginally above the American headline rate. Consequently, most disposals by London-based Americans historically generated enough credit to wipe out the federal charge.
The rebasing election disturbs that balance. Specifically, it reduces the British tax actually paid, and the foreign tax credit only ever reflects tax actually paid or accrued. Therefore, a smaller HMRC payment produces a smaller credit and a larger residual American liability.
The Section 865 Sourcing Trap
This point receives almost no coverage elsewhere, yet it matters enormously. Under section 865 of the Internal Revenue Code, gains on personal property generally take the residence of the seller. Furthermore, section 865(g)(2) treats a United States citizen with a foreign tax home as a non-resident only where foreign tax of at least 10% of the gain is actually paid.
Now consider the arithmetic. Where the rebasing election strips out decades of growth, the British tax can easily fall below 10% of the American gain. Consequently, the gain becomes United States source under domestic rules, and the section 904 limitation leaves no room to use the British tax as a credit.
The United States–United Kingdom income tax treaty provides the rescue. Article 24(4) re-sources income to Britain so far as necessary to allow a credit against American tax. Nevertheless, the credit remains capped at the British tax actually paid. Therefore, the treaty prevents outright double taxation without restoring the tax you no longer pay to HMRC.
Worked Example: A London Banker Sells a Foreign Holding
Numbers clarify this faster than principles. Accordingly, consider a client profile we see constantly, using a constant exchange rate of $1.30 for illustration.
The Position
James is a United States citizen who moved to London in 2011 and works for an investment bank in Canary Wharf. He is not United Kingdom domiciled and never became deemed domiciled. Moreover, he claimed the remittance basis in every year from 2017/18 to 2024/25.
James bought shares in a European listed company in 2009 for £400,000. Their market value on 5 April 2017 was £1,100,000. He sells in July 2026 for £2,600,000. The shares stayed outside Britain throughout, so the rebasing election applies automatically.
The Numbers With Rebasing
His British gain becomes £2,600,000 less £1,100,000, giving £1,500,000. After the £3,000 annual exemption, £1,497,000 suffers tax at 24%, producing £359,280 for HMRC. That equates to roughly $467,064.
His American gain ignores rebasing entirely. Therefore, he reports $2,860,000 of long-term gain, being £2,200,000 converted at $1.30. Federal tax at 20% reaches $572,000, and the credit of $467,064 leaves $104,936 payable. Additionally, net investment income tax of $108,680 applies without any credit under current IRS practice, so his American cost totals $213,616.
The Numbers Without Rebasing
Suppose James makes the rebasing election to disapply the relief. His British gain rises to £2,197,000 after the annual exemption, generating £527,280 of tax, or about $685,464. That credit comfortably exceeds his $572,000 federal charge, so no federal capital gains tax remains.
However, the net investment income tax of $108,680 still bites. Consequently, his combined worldwide cost reaches roughly $794,144, against $680,680 if he accepts rebasing. In short, accepting the relief saves him $113,464 and generates no wasted excess credit.
Where the Answer Flips
Change one variable and the conclusion reverses. Imagine instead that James bought in 2005 for £100,000, the 5 April 2017 value was £2,000,000, and he sells for £2,150,000. His rebased British gain is only £147,000 after the exemption, producing £35,280 of tax.
His American gain, by contrast, remains $2,665,000. British tax of roughly $45,864 represents under 2% of that gain, comfortably beneath the 10% threshold in section 865(g)(2). Therefore, he must rely on treaty re-sourcing to claim any credit at all, and he should evaluate whether disclosure on Form 8833 is appropriate. Here the rebasing election demands genuine analysis rather than automatic acceptance.
When Electing Out of the Rebasing Election Makes Sense
Accepting relief is not always optimal. Notably, three situations regularly justify disapplying it, and each requires modelling both jurisdictions together.
Preserving a Capital Loss
Rebasing can convert a real economic loss into a smaller loss or even a gain. For instance, an asset bought for £900,000, worth £400,000 in April 2017 and sold for £500,000 produces a British gain of £100,000 after rebasing, despite an actual loss of £400,000. Therefore, disapplying the relief preserves a loss worth carrying forward against future disposals.
Using Expiring Foreign Tax Credits
Excess credits carry forward for ten years and back one year. Consequently, clients sitting on large unused general or passive basket carryovers sometimes prefer a bigger British bill, because the credit costs them nothing in real terms. Meanwhile, others deliberately increase British tax to keep future disposals above the section 865 threshold.
Deadlines and Irrevocability
The election to disapply follows the ordinary claims machinery, giving you four years from the end of the relevant tax year. However, the election is irrevocable, so a reversal is impossible once filed. Accordingly, we model the American consequences before the British return goes anywhere near submission.
Valuations, Currency and Evidence
A relief is only as strong as the evidence supporting it. Furthermore, the burden of proof sits squarely with you, in both countries.
Getting a Defensible 5 April 2017 Value
Listed holdings present little difficulty, since historic quotations are readily available. Private company shares and overseas property are another matter entirely. Therefore, commission a professional valuation now rather than reconstructing one under enquiry years later, and retain the working papers permanently.
The HMRC capital gains manual sets out the department's approach to rates and computations. Additionally, the guidance published by HM Revenue and Customs remains the starting point for any valuation dispute.
Sterling Versus Dollar Gains
Americans compute gains in dollars using the exchange rate on each transaction date. Consequently, currency movement alone can create American gain where Britain sees none, particularly given sterling's volatility since 2016. This effect frequently surprises clients who assume the two computations differ only by the rebasing element. Guidance from MoneyHelper explains the basic British position, though it does not address the American overlay.
Foreign mortgages add another layer, because repaying a non-dollar loan can trigger a separate exchange gain. Therefore, treat currency as a discrete workstream within your US UK tax returns preparation, not an afterthought.
The Rebasing Election Alongside the Temporary Repatriation Facility
Rebasing rarely operates in isolation. Instead, it interacts with the Temporary Repatriation Facility, which lets former remittance basis users designate pre-April 2025 foreign income and gains at 12% for 2025/26 and 2026/27, rising to 15% for 2027/28.
Sequencing the Two Reliefs
Designated funds carry no further British tax on remittance. Meanwhile, the rebasing election governs the gain arising on a post-April 2025 disposal. Consequently, a single asset sale can produce a rebased current gain alongside historic unremitted proceeds eligible for designation.
The American treatment of the facility charge differs again, since creditability depends on the character of the underlying income. Therefore, coordinate both reliefs within one plan. Our cross-border planning specialists model the combined outcome before any disposal completes.
Reporting Obligations Do Not Disappear
Reducing tax never reduces disclosure. Furthermore, foreign accounts, foreign securities and overseas holding structures continue to demand FBAR and FATCA reporting regardless of which relief you claim. Penalties for omission remain severe and entirely separate from the tax itself.
Clients who have fallen behind should address the backlog first. Specifically, the IRS Streamlined Filing Compliance Procedures remain available for non-wilful taxpayers, and correcting the record before a major disposal is always cheaper than afterwards.
How TaxYork Can Help
We prepare American and British returns together, in one office, for clients whose affairs span both systems. Moreover, we model the rebasing election in both currencies before you commit to a disposal date, so the decision reflects your worldwide position rather than half of it.
Our work covers the qualifying analysis, the 5 April 2017 valuation file, the sterling and dollar computations, the foreign tax credit basket allocation and the treaty positions that support them. Additionally, we handle the IRS Streamlined Filing work where historic returns or reports are missing. Guidance from the Chartered Institute of Taxation and the ICAEW informs our technical approach throughout.
Conclusion
The rebasing election delivers genuine value, yet it never operates in a vacuum for an American taxpayer. Specifically, it lowers your British bill while leaving your American basis, your American gain and your American reporting entirely unchanged. Consequently, the real question is never whether rebasing helps, but how much of the saving the Internal Revenue Service recovers.
Model both jurisdictions before you sell. Furthermore, secure your valuations now, review your credit carryovers, and test whether the British tax will clear the 10% sourcing threshold. Ultimately, a rebasing election handled with both tax codes in view protects far more wealth than one handled with a single return in mind.
Contact Us
Speak to a specialist before your next disposal, not after it. Our team reviews your qualifying history, values your holdings and quantifies the American consequences of the rebasing election in a single engagement.
Email hello@taxyork.com or telephone 020 3488 8606. Alternatively, book a consultation and we will respond within one working day.
Disclaimer
This article provides general information about United States and United Kingdom tax rules current at August 2026. It does not constitute tax advice and you should not act upon it without professional guidance specific to your circumstances. Tax legislation changes frequently, exchange rates fluctuate, and individual facts alter outcomes materially. TaxYork accepts no liability for any action taken in reliance on this content. Figures used in examples are illustrative only.