The New UK FIG Regime: Key Changes to Residence-Based Taxation

With effect from 6 April 2025, the British Government has definitively abolished the historic remittance basis of taxation, a centuries-old system that linked the taxation of foreign income and gains to the legal concept of domicile. In its place, the Finance Act 2025 has introduced a model based purely on tax residence, whose cornerstone for attracting international talent and investment is the new Foreign Income and Gains regime (commonly referred to as the FIG regime).

This new scheme represents a profound structural reform. Under the old remittance basis, non-domiciled residents (non-doms) could avoid taxation on their foreign-source income and gains only if they kept those funds outside the United Kingdom. If the money was brought into or used in the UK (constituting a remittance), a tax liability was automatically triggered. The FIG regime completely eliminates this restriction: qualifying funds that claim this relief can be freely brought into, invested, or spent in the UK without generating any additional tax liability. However, this advantage comes with strict eligibility conditions, the requirement of an active annual claim, and the forfeiture of significant personal allowances.

The End of an Era: From Remittance to Residence

The transition to the FIG regime marks the culmination of a legislative effort to modernize and simplify the UK tax system, seeking a balance between tax fairness and international competitiveness. The abolition of the remittance basis means that, as a general rule, all UK tax residents are taxed on the arising basis of assessment on their worldwide income and gains, meaning they must declare and pay tax on their global income, regardless of where it arises or whether it is brought into the country.

As an exception designed to attract high-net-worth individuals, entrepreneurs, and professionals, the FIG regime offers a 100% exemption on eligible foreign income and gains for a maximum consecutive period of four tax years. However, to access this benefit, the taxpayer must meet rigorous temporal and regulatory eligibility criteria.

Eligibility Criteria and the Residence Test

To qualify as an eligible resident under the FIG regime, an individual must simultaneously satisfy two fundamental conditions regarding timing and status:

1. Tax Residence under the SRT: The taxpayer must be a UK (England, Scotland, Wales and Northern Ireland) tax resident under the Statutory Residence Test (SRT).
2. Prior Non-Residence Period: The individual must have accumulated at least ten consecutive tax years of non-UK tax residence immediately prior to their arrival or return to the country.

Once these conditions are met, the four-year eligibility period begins from the first tax year in which the individual becomes a UK tax resident. It is of vital importance to note that this four-year window is strictly consecutive. If the taxpayer temporarily leaves the UK during this period, the years of absence continue to run down the eligibility window, as the legislation does not allow for the accumulation, deferral, or rollover of unused years to future tax periods.

Furthermore, for taxpayers who arrived in the UK before 6 April 2025, the years elapsed since their arrival proportionally reduce the remaining four-year eligibility period. For example, if an individual became a UK tax resident in the tax year 2023 to 2024, they can only claim relief under the FIG regime for the remaining years of their four-year period, provided they meet the ten-year prior non-residence requirement.

Legal Boundaries and Conceptual Differences

To avoid costly errors of interpretation, it is essential to distinguish the FIG regime from other current or historical tax mechanisms in the United Kingdom. In particular, the FIG regime must not be confused with the old remittance basis or the Overseas Workday Relief (OWR), as they are legally distinct instruments with separate purposes and tax consequences.

This boundary is crucial: the existence of the FIG regime does not automatically imply the application of the Overseas Workday Relief (OWR), which is designed specifically for globally mobile employees and requires its own formal election and compliance with specific requirements regarding duties performed outside the United Kingdom.

The Cost of the Election: Loss of Allowances and Non-Automaticity

One of the most important warnings for tax advisors and taxpayers is that the FIG regime does not apply automatically. To benefit from the 100% exemption, the individual must make an active, express, and detailed claim each tax year within their Self Assessment tax return, utilizing official helpsheets and forms, such as the HS266.

The decision to claim the FIG regime in a given tax year carries collateral financial consequences that must be carefully evaluated. Pursuant to Sections 845E and 845G of ITTOIA 2005, an individual who makes a foreign income or gain claim under the FIG regime will completely forfeit their entitlement for that tax year to the following allowances and reliefs:

• The standard personal allowance.
• The blind person's allowance.
• Tax reductions for married couples and civil partners.

It is important to note that this opportunity cost primarily affects taxpayers with moderate UK-source income. For high-net-worth individuals (HNWIs) with high UK-source income, the personal allowance is already progressively reduced to zero once income exceeds £100,000 (disappearing entirely at £125,140), meaning this forfeiture does not represent a real or additional cost for them. Due to this loss of allowances for moderate incomes, claiming the FIG regime may not be financially optimal in tax years where foreign-source income is low, as the tax saved on foreign income could be less than the increase in tax on UK-source income resulting from the loss of the personal allowance. Therefore, a comparative annual analysis is required before filing the tax return.

Qualifying Foreign Income vs. Disqualified Income

Not all foreign-source income can benefit from the FIG regime exemption. The legislation dictates that income must qualify as qualifying foreign income under Section 845H of ITTOIA 2005. Conversely, income defined as disqualified income under Section 845I of ITTOIA 2005 is explicitly excluded.

Additionally, there is a strict temporal restriction for returning former remittance basis users. Those individuals who return to the UK after at least ten consecutive years of non-residence and are eligible for the FIG regime cannot claim relief for any foreign income and gains that accrued prior to 6 April 2025, during the period when they were UK residents and using the old remittance basis. The FIG regime relief is strictly confined to income and gains arising on or after 6 April 2025.

Practical Implications and Wealth Planning

For high-net-worth individuals planning to relocate their tax residence to the United Kingdom, the FIG regime offers a highly valuable four-year strategic window. During this period, it is possible to restructure international investment portfolios, receive dividends from controlled foreign corporations, or realize substantial capital gains outside the UK, and subsequently bring those funds into the country to purchase residential property, fund local businesses, or cover living expenses.

However, it is crucial to note that this zero percent tax cost applies exclusively within the UK jurisdiction. Selling assets to restructure portfolios may trigger exit taxes or withholding taxes in the countries where the assets are located, which cannot be credited in the UK since there is no local tax liability against which to offset them. Therefore, planning must be extremely precise. The interaction of the FIG regime with Double Taxation Agreements (DTAs) must be considered, given that residence under the Statutory Residence Test (SRT) grants resident status for treaty purposes, but local exemption of foreign income may limit the ability to claim foreign tax credits or alter source-state taxation on certain yields.

Furthermore, complex practical issues remain, such as the interaction of the FIG regime with offshore trust structures and the Transfer of Assets Abroad (ToAA) provisions, where the attribution of income to UK-resident beneficiaries or settlors will require detailed analysis under the settlements legislation.

Disclaimer

The information contained in this article is for general informational and educational purposes only and does not constitute personalized tax, legal, or financial advice. Tax laws are subject to change and their application can vary based on individual circumstances. We strongly recommend consulting a qualified tax professional before making any decisions based on this information.