The Foreign Income and Gains (FIG) regime: what should Financial services firms consider

What is changing?

Qualifying individuals can elect to be taxed in the UK under the default Arising Basis (i.e. taxed on 100% of their global income and gains), or the FIG regime.

To access the FIG regime an individual needs to have been non-resident in the 10 UK tax years prior to the tax year they arrived in the UK and make a FIG claim. The regime is available for the first four tax years an individual is resident in the UK.

In these four tax years, if a FIG election is made on an individual’s UK Tax Return their FIG will be reportable on their UK Tax Return but not taxable in the UK. This is a change to the Remittance Basis where FIG is only reportable and taxable if it is remitted to the UK.

For employment income, relief on foreign sourced earnings (“overseas workday relief - OWR”) will be available for earnings related to non-UK workdays capped at the lower of 30% of total employment income or £300,000.

The process to obtain relief for OWR at a PAYE/payroll level will be simplified. Employers can apply to self-certify these claims via an online section 690 direction.

Exemption from UK income tax for travel expenses that are paid by, or reimbursed by an employer, will be reduced from five to four years for individuals qualifying for FIG or non-UK resident.

Are there any exceptions or transitional cases?

For non-domiciled individuals resident in the UK before 6 April 2025 and claiming the Remittance Basis, transitional rules will apply.

If an individual had a period of 10 consecutive years of non-UK residence prior to their arrival in the UK and is still within their first four years of UK tax residence, they can access the FIG regime for the remainder of this period.

Separately, a Temporary Repatriation Facility (TRF) will be operated for the first three years of the regime. Under the TRF, individuals who claimed the RB can remit pre-6 April 2025 FIG to the UK at a reduced rate of income tax. There will also be simplified ordering rules in place to determine whether these remittances are taxable.

What do we not know yet?

The Finance bill 2024 has not yet come into effect and could be subject to amendment. This is supported by rumours of an emergency budget and the Chancellor's statement at Davos regarding TRF relaxations.

HMRC guidance on how they intend to interpret and implement the legislation is limited. Clarity is needed on:

• The application of the regime to trailing share and bonus income.
• The amount of information to be reported in respect of FIG on a Tax Return.
• Whether a de minimis will apply to reporting FIG.
• How the TRF and section 690 direction process will work in practice.

These questions represent a small sample of the queries posed to HMRC as part of a consultation process. Therefore, affected employers and their employees need to keep abreast of changes to the proposed legislation.

What action do employers need to take?

• Identify existing and future impacted employees.
• Considering funding and providing advice to these employees.
• Budget for any added tax equalisation gross up costs that may arise from the 30% OWR restriction for tax equalised employees.
• Consider reviewing the benefits of utilising the TRF facility for tax equalised employees.
• Update policies, processes and tax cost estimate calculators to factor in the changes.
• Account for and track the OWR restriction on trailing bonus and share based income.

An example from the Financial services sector

A client in the Asset management industry has a training programme where it sends employees from their overseas HQ office to London to obtain experience. They sought advice on the implications of the FIG regime from us and the expected impact on their trainee population. Under the old Remittance Basis, most of the employees were unable to obtain relief for overseas workdays as a result of bank account planning restrictions. Under the new regime, it is expected the vast majority will now obtain full relief on their overseas workdays and as a result, the business has made amendments to the structure of the assignments. For the UK inbound assignees it hosts, this has helped mitigate the potential tax equalisation costs connected to the 30% OWR restriction.

Conclusion

Removing the Remittance Basis and replacing it with the FIG regime will largely remove the bank account planning and administrative costs required to exempt FIG from UK tax and allow expatriates to remit more FIG to the UK tax free.

However, employers and employees will need to contend with the administrative costs of reporting FIG and accounting for the new rules, the tax cost of the 30% OWR restriction, plus the costs of tracking the restriction on trailing income and updating policies and processes.

Get in touch 

For more information on how we can help employers navigate the new FIG regime, contact us today and one of Global Mobility team members will be in touch.

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