January 31 is a key deadline for trustees of offshore trusts, who need to be considering whether they should make a crucial "rebasing" election by that date in respect of non-UK trusts.

The election allows UK resident but non-UK domiciled individuals to save capital gains tax and stems from the major changes to the UK residency rules that came into effect from April 6, 2008, but which are only just beginning to bite as relevant tax returns now have to be filed.

Chris Mills, Director in the Private Client team at Grant Thornton, comments: "High net worth non-doms will want to consider carefully the pros and cons of making an election. Once made, it is irrevocable and applies to all assets in the trust, most assets in its underlying companies and those subject to the offshore income gain regime, regardless of the assets standing at a gain or loss. If there is an element of doubt as to whether a capital payment has been made then the trustees should consider whether to make the election to cover off the risk that the deadline for the election is missed."

He added: "All non-resident settlements with one or more current or potential non-UK domiciled beneficiaries should seek advice on the availability of the election and the consequences of making an election. Trustees should also be made aware of the relevant time limits for making the election."

The election was introduced to help the transition from the old residency rules to the new ones. If an individual had a trust set up before April 6, 2008 then, when that trust eventually disposes of assets, there may be gains that relate to those pre-April 6, 2008 assets. These can benefit from the so-called "rebasing" election, which allows a revaluation as at that date which in many cases will lead to a saving of capital gains tax.

If the trustees wish to make the election, they need to complete a form (called the RBE1) and it must be submitted to HM Revenue and Customs (HMRC) on or before the January 31 following the end of the first tax year (beginning with 2008/09) in which one of the following occurs: a capital payment is made to a UK resident beneficiary, or the trustees transfer all or part of the settled property to another trust. This means January 31, 2010 is an important deadline for many trustees as, if they miss this date, the opportunity to make an advantageous election will be missed.

However, not everyone will need to make an election at this time. For example, neither of the conditions mentioned above may have arisen in 2008/09. Others may opt to give up the chance of an election to keep their offshore tax affairs private from the eyes of HMRC.

According to the private client practice at KPMG, for non-dom taxpayers, this could be "the most important tax return of their lives." The firm also warns that these returns could "have a significant impact on the future of the UK as a financial center."

"UK resident non-dom taxpayers have to decide whether to claim the remittance basis – keeping their offshore profits outside the UK tax net – or to pay UK tax on their worldwide income or gains. For those living here for 7 or more years, they also have to pay the GBP30,000 'fee' if they want to use the remittance basis," explained David Kilshaw, head of private client advisory at KPMG in the UK.

"These are complex new rules, which tax payers and HMRC alike are struggling with. HMRC can be expected to enquire into a large number of returns to make sure they are correct, and rightly so. But it is also to be hoped their approach with be sympathetic and understanding. If HMRC were to be unduly aggressive or suspicious in their dealing with the returns filed, this could be the straw which causes many non-doms to leave the UK," he cautioned.