FIG Regime: The UK's Tax Regime For New Residents

With effect from 6 April 2025, the UK's "non-dom" regime was abolished and replaced with a new four-year residence-based foreign income and gains (FIG) inpatriate regime. Wide-reaching reforms were also made to the way in which inheritance tax is charged in the UK (considered separately here).

Although these reforms represent a major change to the way in which individuals with an international connection are taxed in the UK, the UK remains an attractive destination, with opportunities arising from the reforms, whether for individuals moving to the UK for the first time, returning to the UK after an extended absence, or already resident in the UK.

• There is potentially no UK tax on FIG (arising personally or within a trust structure) for an individual's first four years of UK residence, even if such funds are brought to the UK.

• There is no charge for accessing these benefits.

• The benefits are available whether or not the individual is working in the UK.

• Earnings for work done outside the UK will qualify for relief from UK tax for up to four years (subject to a maximum annual cap of £300,000), even if these funds are brought to the UK.

• Individuals who are already UK resident (or were previously UK resident) may be able to benefit from certain transitional provisions, including in particular the Temporary Repatriation Facility which facilitates the remittance of historic FIG to the UK at a favourable flat tax rate.

We set out below the key features of the new regime.

The FIG regime

Before 6 April 2025, the UK's non-dom regime enabled non-UK domiciliaries to:

• elect to be taxed under the favourable "remittance basis" of taxation during their first 15 years of UK tax residence (whereby, broadly, qualifying individuals were subject to UK tax only on UK source income and gains, and any non-UK source income and gains which they "remitted" to the UK); and

• benefit from advantageous income and capital gains tax treatment in relation to trusts (even after the initial 15 years of UK tax residence) that qualified for "protected settlement status".

(Note that non-UK domiciliaries also benefited from advantageous inheritance tax treatment – we consider the recent reforms to inheritance tax in our separate article.)

With effect from 6 April 2025, it is no longer possible to claim the remittance basis of taxation (although the previous remittance rules – albeit with a few specific amendments – continue to apply to unremitted FIG which arose prior to 6 April 2025) and the remittance basis has been replaced with the FIG regime.

Who is eligible?

Individuals qualify for the FIG regime if they have been non-UK tax resident for at least 10 consecutive years (assessed by reference to the UK's statutory residence test), regardless of their domicile status. This means that UK domiciliaries are able to benefit from the FIG regime upon their return to the UK, provided that they have the requisite 10-year period of non-UK residence.

Accessing the FIG regime

Although there is no charge to access the FIG regime, it does not apply automatically and must be claimed in a UK tax return. The amount of FIG for which relief is claimed must be quantified, and such amounts included in the return.

Taxation of personally held FIG

The regime gives qualifying individuals 100% relief from UK tax on certain categories of FIG (broadly, those that previously qualified for the remittance basis) that arise during their first four years of UK residence.

Unlike the remittance basis of taxation, such relief applies irrespective of whether the FIG in question is brought to or used in the UK. This means that there is no longer a disincentive to bringing such funds to the UK, and the potential for double taxation due to a mismatch of tax liabilities in the UK and the individual's "home" jurisdiction has also been removed.

Individuals who qualify for the FIG regime will, where possible, wish to time disposals (or rebasing) of non-UK assets and the receipt of non-UK income so that these events occur, as far as possible, during the four-year tax-free period.

Once an individual ceases to qualify for the FIG regime (i.e. after their initial four years of UK residence), they pay UK tax on their worldwide income and gains as they arise.

Taxation of trust FIG

From 6 April 2025, the preferential income and capital gains tax treatment of "protected settlements" was removed from all trusts (including those already in existence). However, under the new rules, for as long as an individual qualifies for (and claims) the FIG regime, they will not pay UK tax on trust FIG, either as it arises or upon receipt of trust distributions.

Once the individual is no longer eligible for the FIG regime, they will, in general, be liable to pay UK tax on all profits arising within a trust structure which they have established, as well as on benefits received which are matched with trust income or gains. That said, trust structures set up without UK tax in mind should be carefully analysed as profits arising within them may not all be taxable in the UK.

Overseas workday relief

Before 6 April 2025, overseas workday relief (OWR) was available to certain non-UK domiciled employees who performed at least part of their employment duties overseas for, broadly, their first three years of UK residence, and permitted the apportionment of their salary between UK and non-UK duties, with the latter eligible for the remittance basis of taxation.

Since 6 April 2025, OWR is now available for up to four years (increased from the previous three years) to taxpayers who qualify for the FIG regime, and UK tax relief applies whether or not the qualifying employment income is received in or brought to the UK. However, an annual cap of the lower of 30% of the qualifying foreign employment income or £300,000 now applies.

There are specific transitional provisions for taxpayers who started claiming OWR prior to 6 April 2025.

Transitional provisions

By way of recognition that these reforms represent a significant change to the taxation of non-UK domiciliaries, certain transitional arrangements have been made available.

Temporary Repatriation Facility

Individuals who have previously been taxed on the remittance basis are able to access a three-year Temporary Repatriation Facility in respect of FIG that arose (either personally or within a trust structure which is attributed to the individual or matched to benefits received by that individual) before 6 April 2025.

A special tax rate applies to a "designated amount" (12% in 2025/26 and 2026/27, rising to 15% in 2027/28) and, once this has been paid, no further UK tax arises on the designated amount, irrespective of whether it is remitted to the UK (although care may need to be taken in respect of trust distributions which are then remitted to the UK).

Capital gains tax rebasing to 5 April 2017

Certain individuals who previously claimed the remittance basis may qualify for a rebasing relief, whereby personally held assets are rebased for capital gains tax purposes to their value at 5 April 2017, provided certain conditions are met.

Further advice

As set out above, these reforms represent a significant change to the way in which individuals with an international connection are taxed in the UK. However, the options open to such individuals will depend on their personal circumstances so specific advice will be essential.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.