The FIG regime - Changes to the taxation of non-domiciled individuals

The new regime will have wide-ranging implications for long-term UK residents who are non-UK domiciled, for inheritance tax and the provisions regarding trusts. However, in this article, we have focussed only on what this will mean for internationally mobile employees (IME) who move to the UK and for their employers.

How will the FIG regime work?

IMEs that move to the UK from 6 April 2025

• From 6 April 2025, individuals who become tax resident in the UK after 10 years of non-residence will not pay income tax on their foreign income and gains in their first four tax years of UK residence if they choose to be taxed under the FIG regime (subject to special rules for employment income; see below).
• After these four years, they will be subject to UK tax on their worldwide income and gains under the arising basis.
• Unlike the existing remittance basis regime, individuals who choose to be taxed under the FIG regime can remit foreign income and gains arising in this four-year period without incurring a UK tax charge on their remittances.
• However, individuals who choose to be taxed under the FIG regime will lose their entitlement to a tax-free personal allowance and capital gain tax (CGT) annual exemption.
• A claim to be taxed under the FIG regime will need to be made for each year it applies (presumably on the individual’s self-assessment tax return).
• For employment income, overseas workday relief (OWR) will be retained and simplified. Where individuals choose to be taxed under the FIG regime, for their first three tax years of UK residence they will only be subject to UK tax on their UK source employment income related to their UK work days. Their non-UK source employment income earned in this period will fall outside the scope of UK tax for the first three tax years they are resident in the UK regardless of whether they remit this income to the UK or not.

IMEs that moved to the UK pre-6 April 2025

Individuals who on 6 April 2025 have been tax resident in the UK for less than four years (after 10 years of non-residence) can use the FIG regime for the remainder of their first four tax years of UK residence.

This principle will also apply to employment income, i.e. when assessing whether OWR applies, the three-year clock considers tax years of residence pre-6 April 2025.

Individuals who elected to be taxed on the remittance basis pre-6 April 2025, will be able to elect to pay tax at a reduced rate of 12% on remittances of their pre-6 April 2015 foreign income and gains under a new Temporary Repatriation Facility (TRF), available for the 25/26 and 26/27 tax years.

Individuals who were taxed on the remittance basis pre-6 April 2025 and do not qualify for the FIG regime will, for 25/26 tax year only, be liable to tax on only 50% of their foreign income arising in that year (this does not apply to capital gains).

Implications for employers and IMEs

Our comments below are made in relation to the existing government proposals, which are scheduled to commence after the date of the next UK general election. The current main opposition party has indicated it may make changes to the current proposals, should it come to power.

We see the FIG regime as a welcomed simplification to the taxation of foreign income and gains for IMEs who move to the UK and reflects the recommendations made by expatriate practitioners.

• The existing OWR regime and special mixed fund account rules are difficult to administer, create confusion and complexity for employees and their employers, and lead to additional professional fees that make secondments expensive.
• The FIG regime is more akin to the expatriate regimes offered in continental Europe for example by Belgium, the Netherlands and Italy.  The new regime places the UK in a more competitive position in attracting expatriates who come to the UK on short-term secondments.
• We envisage that the FIG regime could lead to an increase in secondments to the UK as the professional costs associated with managing these moves should decrease. Plus, tax equalisation gross up costs may be reduced in some cases.
• There is a potential benefit to the economy from an increase in the ability to attract talented IMEs to the UK and these employees being able to remit their FIG to the UK tax free to spend on UK goods and services.
• Payroll administration and costs should be reduced as employers will be able to add IMEs to the UK payroll and pay into UK bank accounts without creating taxable remittances.

There will inevitably be some challenges in dealing with the transitional rules regarding the remittance of pre-6 April FIG, and the 50% rule for 25/26.

However, we expect that this will only apply to a small number of expatriate employees in practice and disregarding these issues, the rules are a positive for all stakeholders involved in the management of IMEs.