The UK’s New FIG Regime: The Historic Transition from Domicile to Tax Residence

1. Introduction: The End of a Tax Era

The United Kingdom’s tax landscape has undergone one of its most profound transformations in modern history. With effect from 6 April 2025, the British government has permanently abolished the historic remittance basis of assessment. For centuries, this mechanism allowed non-domiciled individuals ("non-doms") to keep their foreign-source income and gains outside the scope of His Majesty’s Revenue and Customs (HMRC), provided those funds were not brought into or remitted to the UK.

This structural reform removes the concept of "domicile" as a relevant connecting factor and determinant of tax liability, replacing it with a system based strictly on tax residence. From 6 April 2025, the remittance basis of taxation has been abolished, with the concept of domicile as a relevant connecting factor in the tax system having been replaced by a system based on tax residence. This transition not only affects income and capital gains taxes but also redefines Inheritance Tax (IHT) under a residence-based criterion.

In its place, the Foreign Income and Gains (FIG) regime has been introduced. This scheme is designed to attract high-net-worth individuals, highly skilled professionals, and international investors by offering a predictable tax exemption framework during their first four years of UK tax residence. While the elimination of remittance tracking simplifies the physical repatriation of funds, technical compliance and interaction with trust structures and anti-avoidance rules remain highly complex, operating under radically different rules than the previous regime.

2. The New FIG Regime: Architecture and Access Requirements

The FIG regime represents a fundamental paradigm shift. Under the new statutory framework, taxpayers who qualify as new residents can claim a full exemption on their foreign income and gains arising during a maximum, non-extendable period of consecutive tax years, starting from the tax year in which they become UK tax resident.

To access this benefit, the British legislature has established a strict entry threshold. The 4-year foreign income and gains regime is only available if you’re a qualifying resident. Individuals who come to the UK after a period of at least 10 consecutive tax years of non-UK residence are able to claim UK tax relief on foreign income and gains that accrue during their first 4 years of UK residence. This requires meeting two concurrent conditions:

1. Being a UK tax resident under the rules of the Statutory Residence Test (SRT).
2. Having been a non-UK tax resident for at least the ten consecutive tax years immediately preceding their arrival or return to the country.

This ten-year non-residence rule ensures that the regime is reserved exclusively for new flows of capital and talent, preventing abusive tax planning by returning residents. It is critical to note that the four-year eligibility period is calculated strictly from the first year of tax residence. If a taxpayer chooses not to claim the FIG regime in their first or second year, or if they temporarily leave the UK during that period, the elapsed years are permanently lost, as it is not possible to accumulate or carry forward unused eligibility years to later tax periods.

3. The Hidden Cost of the Election: Loss of Allowances and Tax Effects

A key warning for tax advisors and taxpayers is that the FIG regime does not apply automatically. To benefit from the exemption, the taxpayer must make a formal claim in their annual Self Assessment tax return. This claim carries a direct and material cost that must be carefully evaluated each year.

Under UK tax law, specifically Sections 845E and 845G of the Income Tax (Trading and Other Income) Act 2005 (ITTOIA 2005), making a foreign income claim, a foreign gain claim, or an Overseas Workday Relief (OWR) election for a tax year results in the automatic and total loss of any entitlement to the personal allowance and the blind person’s allowance for that tax year. Tax reductions for married couples and civil partners are also forfeited.

Importantly, because qualifying foreign income subject to a successful FIG claim is exempt from UK tax, it does not form part of the taxpayer's taxable income and is therefore excluded from the calculation of Adjusted Net Income (ANI). However, the loss of the personal allowance and other indirect tax benefits does significantly increase the effective tax burden on the taxpayer's remaining UK-source income.

4. Legal Boundaries: Comparative Table of Instruments

To prevent interpretative errors that could lead to severe tax contingencies, it is essential to distinguish the FIG regime from other historical and concurrent tax instruments. The FIG regime must not be confused with the former remittance basis of assessment, nor with the Overseas Workday Relief (OWR), as they are legally distinct instruments with separate requirements, effects, and statutory bases.

5. Qualifying Income, Disqualified Income, and Transitional Implications

The FIG regime defines precisely which types of income can benefit from the exemption. Eligible income must fall within the descriptions set out in Section 845H of ITTOIA 2005 and must not constitute "disqualified income" under Section 845I of the same Act. Qualifying foreign income generally includes foreign corporate dividends, non-UK bank interest, rental income from offshore real estate, and capital gains from the disposal of non-UK assets.

However, critical transitional restrictions apply to taxpayers with prior UK ties. Former remittance basis users who return to the UK after a period of non-residence cannot claim FIG relief for foreign income and gains that accrued prior to 6 April 2025. Qualifying foreign income for the purposes of the FIG regime can only be income which arises on or after 6 April 2025. Any income accumulated before that date under the remittance basis retains its historical character and remains subject to tax if remitted to the UK.

Nevertheless, as a crucial transitional exception designed to mitigate this historical taxation, the British government has introduced the Temporary Repatriation Facility (TRF). This mechanism allows taxpayers to repatriate these pre-2025 accumulated remittance basis funds at a reduced, favorable fixed tax rate. Specifically, the TRF will allow the repatriation of historical gains at a tax rate of 12% during the first two tax years (2025/26 and 2026/27) and 15% in the third tax year (2027/28).

6. Wealth Management and Double Taxation Treaty Implications

From an international structuring and wealth management perspective, the FIG regime offers an unprecedented advantage compared to the old system: the free movement of capital. Under the remittance basis, taxpayers had to meticulously segregate their offshore bank accounts to avoid "co-mingling" funds, which would trigger tax liabilities upon bringing money into the UK. Under the FIG regime, tax-relieved funds can be brought directly into the UK and used to purchase assets, invest in local businesses, or fund living expenses without generating any additional tax liability.

For instance, consider a taxpayer who qualifies for the FIG regime by virtue of having been a non-UK resident for ten consecutive tax years. If this individual receives dividends from a foreign company that constitute qualifying foreign income under Section 845H of ITTOIA 2005, and makes the corresponding claim in their tax return, those dividends will be entirely exempt from UK income tax. The taxpayer can then transfer these exempt dividends to a UK bank account in London and use them freely within the country without incurring any remittance tax liability. This flow of exemption and repatriation represents one of the most powerful tools in the new British tax ecosystem.

However, the interaction with Double Taxation Agreements (DTAs) adds a layer of complexity. An individual who is resident in the UK under the SRT is considered a resident for the purposes of Article 4(1) of DTAs. Nonetheless, if the taxpayer claims the FIG regime, they must carefully analyze the treaty's tie-breaker rules and the taxation rules in the source country, as the UK exemption does not guarantee that the source state will not exercise its right to tax that foreign income.

6.1. Trusts and the Loss of 'Protected Trust Status'

A critical aspect of the reform is the elimination of deferral benefits for protected trusts. Effective 6 April 2025, UK-resident settlors who do not qualify for the FIG regime will lose trust protection, causing trust income and gains to be attributed and taxed directly on them as they arise.

6.2. The New Inheritance Tax (IHT) Framework

The transition from domicile to tax residence also transforms Inheritance Tax (IHT). The new model adopts a 10-year residence test for an individual to be subject to worldwide IHT, while also establishing a carry-over period (tail) after departing the country, completely redefining international estate planning.

7. Disclaimer

This article is for informational purposes only and does not constitute legal or tax advice. Readers should consult a professional advisor before making any decisions based on this information.