What is the issue? 

From 6 April 2025, the remittance basis of taxation for UK resident non-domiciled individuals will be abolished and will be replaced by a simplified Foreign Income and Gains (FIG) regime. There will also be changes to the way inheritance tax operates, so that it will be based on a test of residence rather than domicile. However, we focus only on the proposed new FIG regime in this article. 

Under the existing remittance basis rules, non-domiciled individuals can make an election in respect of their FIG to be subject to UK tax only on the amount remitted to the UK.  

This relief is broadly available for the first 15 tax years a non-domiciled individual is resident in the UK, with these individuals required to pay a charge once they have been resident in the UK for 7 tax years. Additionally, for employment income, relief from UK tax on unremitted earnings-related to non-UK work days is available for the first 3 tax years they are in the UK, and requires complicated bank account planning. 

The general opinion is that providing this relief from UK tax for long-standing non-domiciled individuals is wrong as they are not contributing their “fair share” of tax.  

Plus, the bank account planning required to obtain relief on unremitted FIG is complicated and it discourages inward investment and prevents spending on UK goods and services. 

Finally, other countries in Europe such as Italy, Belgium and the Netherlands, have more simplified and attractive expatriate regimes.  

How will the new FIG regime work? 

• To qualify for the regime, individuals need to have been non-UK resident for a period of at least 10 years before arrival. 

• From 6 April 2025, qualifying individuals will not pay income tax on their FIG in their first four tax years of UK residence. 

• After this period has elapsed, they will pay UK tax on their worldwide income and gains. 

• Unlike the remittance basis, individuals are not required to keep money outside the UK to benefit from the tax exemption. 

• Similarly, for employment income, only earnings attributable to UK workdays will be taxable for the first 3 tax years a qualifying individual is a UK tax resident.  

• The employment income earned in this period that relates to non-UK work days will not be subject UK tax regardless of whether it is remitted to the UK or not. 

• Transitional provisions will apply for inbound residents that meet the qualifying (10 year non residence) criteria and have been in the UK for less than 4 years on 5 April 2025 and for individuals that qualified for the remittance basis pre-6 April 2025. 

Implications for employers and IMEs 

The FIG regime is a huge and very welcome simplification of the taxation of FIG for employees assigned to the UK on a short-term basis.  

It will likely make the UK a more competitive and cost-effective location for inward investment that will help to attract businesses. In addition, IMEs that move to the UK under the new regime will be free to remit their FIG to the UK tax free to spend on UK goods and services. 

There will, of course, be challenges in dealing with the transition from one set of rules to another, but this will only apply to a small percentage of employees. Hence, the FIG regime is as a positive change for expatriates and their employers.