How the abolition of the non-dom regime will impact IMEs

The introduction of the FIG regime means:

• An end to the archaic concept of domicile, bank account planning and complicated mixed fund rules used to determine a non-domiciled employee's taxable FIG.
• Remittances of FIG no longer impact an employee’s tax position.
• A requirement to report worldwide income and gains and make a FIG election on tax returns.
• A more prescriptive method to calculate taxable FIG and overseas workday relief (OWR) on employment income related to non-UK work days.
• A financial limit on Overseas Workday Relief (OWR) like the expatriate regimes in the Netherlands and Belgium.

How will the FIG regime work for IMEs?

Effective from 6 April 2025:

• Domicile and Remittance Basis (RB) will be replaced by the FIG regime: Employees will be taxed on the “arising” basis. Regardless of whether their income and gains are remitted to the UK or not, this will have no impact on their taxable income.
• Individuals’ non-resident for ten tax years prior to their UK arrival: These individuals will not be liable for UK tax on their FIG for the first four tax years they are resident in the UK if they make a FIG claim (they will only be subject to UK tax on their UK income and gains). After this period, they will be subject to UK tax on their worldwide income and gains.
• FIG claim consequences: Individuals making this claim will lose their CGT annual exemption and personal allowance.
• Existing RB users: For these individuals, the FIG regime applies to them in their first four tax years of UK residence if they were non-resident in the UK in the ten tax years prior to the tax year of their arrival in the UK.
• Non-eligible former RB users: They will be liable to UK tax on worldwide income and gains, subject to any relief for OWR under the transitional arrangements referenced below.

Overseas Workday Relief (OWR)

OWR will be retained, but with restrictions

• Financial limits: For the first four tax years of residence, an individual who makes a FIG claim and OWR election will have their OWR restricted to the lower of £300,000, or 30% of their “qualifying” employment income per tax year.
• Trailing income (bonus & share income): This income will be tested against the financial limit for the tax year that the income relates to, rather than the tax year of receipt.

Transitional Arrangements for employees who qualified for OWR pre-6 April 2025

• Non-FIG regime qualifiers: They will benefit from OWR for the remainder of the three-tax year period they are entitled to OWR. However, their OWR will not be restricted to a financial limit.
• FIG regime qualifiers: They will be entitled to OWR for the remainder of the first four tax years of their tax residence in the UK.
• Pre-6 April 2025 trailing income: This income will be taxable on the remittance basis and must be paid into a qualifying overseas bank account to benefit from OWR.

Section 690 direction applications

From 6 April 2025 there will be a process now, check later approach: Employers will need to notify HMRC online of their intention to obtain a section 690 direction to only apply PAYE to the estimated portion of an employee’s earnings related to their UK work days post OWR. Upon receiving auto acknowledgment from HMRC, they will be authorised to apply PAYE on these earnings.

Implications for employers and IMEs

We welcome the simplification to the taxation of FIG for internationally mobile employees (IMEs) who come to work in the UK for a short period.

Removing the remittance basis of taxation will encourage many new non-UK expatriates to spend more of their earnings in the UK which will increase spending on UK goods and services and boost the UK economy.

However, the requirement to report employee’s worldwide earnings, make a yearly FIG election and account for a limit on OWR, means that the administrative burden alleviated from removing the remittance basis of taxation is likely to be negated by reporting requirements and accounting for the new rules.

Accounting for a OWR limit on trailing share and bonus income that could be paid many years after the tax year that it relates to will require robust processes and good record keeping.

Nevertheless, the FIG regime and the new OWR legislation reflects a move to a more modern tax system based on residence rather than domicile and reflects the current political mood music.

Recommended actions for employers to take

In preparation for the introduction of the new regime and its new administrative requirements, attention should be given to the following:

• Employee support: Provide employees with a summary of how the FIG regime impacts them and provide additional support for impacted employees.
• Policy and process updates: Update policies and processes to reflect legislative changes.
• Trailing income advice: Manage financial limits on OWR to mitigate tax on bonuses and shares.
• PAYE reporting process: Update PAYE payroll reporting processes to reflect changes to section 690 reporting and the financial limit.

Get in touch with our Tax specialists

If you require further information or support with managing the taxation for IMEs, please do not hesitate to get in touch.

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