Laurence Morgan writes in TL4 HNW Magazine – Next Gen Wealth edition
Written by
On 6 April 2025, the UK’s “non-dom” tax regime was abolished, and as part of the changes the “remittance basis” of taxation was replaced with a new residence based four-year FIG regime.
Under the “non-dom” regime, qualifying UK resident non-domiciled individuals were able to elect for the remittance basis for their first 15 years of UK residence, such that they were only taxed on UK source income and gains, and any non-UK source income and gains which they “remitted” to the UK. From 6 April 2025, all individuals, regardless of their domicile status, may qualify for the new FIG regime which provides relief from UK tax on FIG in their first four years of UK residence.
What is the new four-year FIG regime and who can benefit?
Under the new FIG regime, individuals who have been non-UK resident for 10 consecutive UK tax years (as determined by the UK’s statutory residence test) may claim relief from UK tax on their FIG for their first four years of UK residence.
This can include individuals who were resident before 6 April 2025, so long as they are still within their first four years of residence. As domicile is no longer a relevant factor, UK domiciled individuals who have lived abroad for a number of years can also potentially qualify for the regime should they return to the UK.
The four-year period is the four years beginning with the first year of residence. Therefore if, for example, an individual is UK resident in year 1 and non-UK resident in years 2 and 3, they will only qualify for the regime for one more year; they will be subject to UK tax on their worldwide income from year 5, notwithstanding that this is only their second year of residence.
After the end of the four-year FIG period, individuals will be subject to UK tax on their worldwide income on the arising basis.
How will the 4-year FIG regime work?
FIG relief must be claimed in each qualifying year within 12 months of the 31 January after the end of the relevant tax year. The taxpayer must quantify and identify the source of the FIG for which relief is being claimed and they may choose to make a claim for relief in respect of some or all of their income and gains.
Relief will be given on a source-by-source basis, and FIG which is not quantified and identified will remain taxable at the usual rates, subject to the provisions of any relevant double tax treaty.
There is no charge for claiming FIG relief, but a person who claims the relief will lose their annual income and capital gains tax allowances and the ability to use capital losses in the year of the claim. However, once the relief is claimed the relevant FIG will not be taxable in the UK, irrespective of whether it is brought to or used in the UK.
Most types of FIG are relievable under the regime although there are some exceptions – broadly speaking, FIG that previously qualified for the remittance basis will qualify for the new FIG regime. There are specific rules for employment income which are discussed below.
Are trust income and gains covered?
An individual who qualifies for the FIG regime will be able to claim relief in respect of FIG arising within a trust that is attributed to them under the UK’s anti-avoidance rules, whether as a result of them being the settlor or transferor in respect of the structure, or their receiving a distribution or other benefit that is “matched” with trust income or gains.
After the end of the four-year regime, subject to certain defences, they will potentially be liable for tax on all income and gains arising within a non-UK trust structure established by them, and on any benefits they receive which are “matched” with trust income or gains.
Transitional provisions for former remittance basis users
Although the remittance basis is no longer available from 6 April 2025, individuals who have previously paid tax on the remittance basis will still be subject to tax on a remittance of pre-6 April 2025 FIG after 5 April 2025. However, they will be able to “designate” previously unremitted pre-6 April 2025 FIG under the new “temporary repatriation facility” (the “TRF”) for three years. Amounts designated under the TRF will benefit from a special reduced rate of tax (12% in 2025/26 and 2026/27, and 15% in 2027/28). Where amounts are designated and tax paid under the TRF, there will be no further charge on a remittance.
Transitional rules were also introduced to “rebase” non-UK situated assets held by non-domiciled individuals who previously claimed the remittance basis in any one of the 2017/18 to 2024/25 tax years to their 5 April 2017 value for capital gains tax purposes, subject to certain conditions.
Special rules for non-UK employment income
For tax years prior to 6 April 2025, employees who were newly UK resident but non-domiciled could benefit from “overseas workday relief” (OWR), which broadly meant that employment income in respect of duties performed outside the UK (usually determined on the basis of overseas workdays) would not be taxable unless and until it was remitted to the UK.
OWR has been retained and adapted under the new regime so that where an employee is eligible for the new 4-year FIG regime, OWR will be available on their qualifying foreign employment income such that it will not be subject to UK tax, regardless of whether they bring it to the UK. However, it is now subject to a cap of the lower of 30% of the qualifying employment income or £300,000 per tax year.
What happens after the 4-year FIG regime?
Once an individual has been UK resident for four tax years and ceases to qualify for the FIG regime, they will be taxed on their worldwide income and gains (including any trust income and gains attributed to them), subject to the provisions of any double tax treaty.
Summary
Although the favourable FIG regime is limited to four years, it is more generous for the period that it applies as FIG is exempt from UK tax altogether. It is also more straightforward than the previous remittance basis regime and no longer disincentivises bringing funds to the UK, but it does introduce a new reporting requirement in respect of FIG in order to claim the relief.
This article document is intended to provide a first point of reference for current developments in aspects of the law. It should not be relied on as a substitute for professional advice.
This article was first published by ThoughtLeaders4 in the High Net Worth Magazine, Next Gen Wealth edition, Issue 20.
