The UK Fiscal Reform: The New Four-Year FIG Regime, the End of 'Non-Dom' Status, and the New IHT Framework

1. Introduction and the historical paradigm shift

April 6, 2025, will be remembered as the dawn of one of the most profound transformations in the modern fiscal history of the United Kingdom. With the definitive abolition of the non-domiciled status (popularly known as non-dom) and the historic remittance basis of taxation, the British government has dismantled a tax framework that endured for over two centuries. This legacy system allowed UK residents whose legal domicile was abroad to avoid UK taxation on their foreign income and capital gains, provided those funds were not brought into or remitted to the country.

In its place, the British legislature has introduced the Foreign Income and Gains (FIG) regime. This new model represents a radical paradigm shift: moving away from a connecting factor based on the subjective and complex concept of "domicile" to an objective system grounded strictly in tax residence. Under the FIG regime, qualifying new residents can benefit from a full tax exemption on their foreign source income and gains for a non-extendable period of four years, with the advantage of being able to bring these capital funds into the UK at any time without incurring any additional tax liabilities.

2. The demise of domicile as a connecting factor

For generations, the concept of domicile functioned as a premier tax planning tool for high-net-worth international individuals established in London and other regions of the country. However, the technical complexity of determining a taxpayer's domicile, combined with growing political and social pressure for a fairer tax system, led authorities to conclude that the model was outdated. The government consistently maintained that the domicile rules disincentivised local investment by penalising the repatriation of offshore funds and encouraging individuals to keep their wealth in offshore structures.

The structural reform implemented from April 6, 2025, entirely removes preferential tax treatment based on domicile status. From this date forward, all UK tax residents are, as a general rule, subject to the arising basis of assessment on their worldwide income and gains, meaning they must pay tax on their global income regardless of where it arises, unless they formally claim and qualify for the new FIG regime.

3. Eligibility criteria and the Statutory Residence Test (SRT)

Access to the FIG regime is neither discretionary nor automatic. To qualify as a "qualifying new resident," the taxpayer must pass a rigorous temporal test of prior non-residence. Specifically, the individual must have been a non-UK tax resident for at least 10 consecutive tax years immediately preceding their arrival in the country.

Determining tax residence, both for the qualifying period and during the years of enjoying the regime, is strictly governed by the Statutory Residence Test (SRT), the codified statutory framework that assesses physical presence days and ties to the UK. If a taxpayer meets this 10-year non-residence requirement and becomes a UK resident under the SRT, they can claim the benefits of the FIG regime during their first 4 consecutive tax years of residence.

4. Mechanics of the FIG regime: 100% relief and free repatriation

The primary attraction of the FIG regime is the provision of a 100% tax relief on eligible foreign income and capital gains. This encompasses international dividends, foreign bank interest, rental income from properties situated outside the UK, and capital gains derived from the disposal of foreign assets.

It is essential to clarify the conceptual boundaries of this instrument. The FIG regime must not be confused with the former remittance basis of taxation, as they are legally distinct instruments. Under the remittance basis, taxpayers enjoyed a tax deferral conditional on funds remaining outside the UK; any introduction of money or indirect benefit derived from those funds in the UK triggered a taxable event. Conversely, the FIG regime is a complete exemption system: tax-relieved funds under the regime can be introduced, transferred, or spent in the UK at any time without generating any additional tax liability.

It is of paramount importance to note that this elimination of the need for complex segregated bank account structures applies solely and strictly to income and gains generated under the FIG regime from 6 April 2025. Historical funds accumulated prior to this date under the 'non-dom' regime continue to require strict account segregation to prevent accidental remittances that would trigger taxable events under the legacy rules.

5. Comparative table of tax instruments

To clarify the substantial differences between the various tax mechanisms that coexist or have been replaced under this reform, the following comparative table is presented:

6. Procedural rigour: Annual claims, the 'Use It or Lose It' rule, and loss of allowances

One of the most critical warnings for taxpayers and their advisers is that the FIG regime does not apply automatically by simply meeting the objective residence conditions. The taxpayer must make a formal and explicit claim in their annual Self Assessment tax return, using the relevant supplementary pages (such as helpsheet HS266).

This claim must be made year-on-year. Taxpayers can freely choose to claim relief for their foreign income, their foreign capital gains, or both. However, if in a given tax year a taxpayer decides not to make a claim, or simply omits it by mistake, that year of benefit is consumed and permanently lost. The legislation explicitly prohibits rolling over or postponing unused years to a later period. The four-year window runs inexorably from the moment UK tax residence is acquired. It is critical to note that under the Statutory Residence Test (SRT) rules, if a taxpayer qualifies for split-year treatment, that partial tax year is still counted as a full year of eligibility within the four-year limit, potentially reducing the effective period of relief.

It is highly important to note that claiming the FIG regime carries significant collateral consequences, specifically the loss of the standard Personal Allowance and the Capital Gains Tax (CGT) annual exempt amount for that tax year.

7. Transitional rules for arriving taxpayers

The British legislature has provided transitional arrangements for taxpayers who moved to the UK shortly before the formal commencement of the reform. If an individual's first 4 years as a UK tax resident under the SRT started before April 6, 2025, they can access the FIG regime for the remaining years of their initial four-year period.

For example, if a taxpayer arrived in the UK and became a tax resident in the 2023 to 2024 tax year (following at least 10 years of non-residence), they can claim the benefits of the FIG regime for the tax years 2025 to 2026 and 2026 to 2027, which represent the third and fourth years of their eligibility window. Once this period expires, they will mandatorily transition to the arising basis of worldwide taxation.

8. Impact on trust protections and offshore anti-avoidance legislation

The reform not only alters direct taxation for individuals but also severely impacts international wealth planning structures, particularly offshore trusts. Historically, trusts established by non-domiciled individuals enjoyed broad tax protections, which prevented the settlor from being taxed on income and gains accumulated within the structure unless distributions were made.

Under the new rules in force since April 6, 2025, these trust protections on settlor-interested trusts are completely eliminated for individuals who do not qualify or cease to qualify for the 4-year FIG regime. Consequently, once the four-year residence threshold is exceeded, a UK-resident settlor will be taxed directly on the income generated by the trust under the Transfer of Assets Abroad (ToAA) anti-avoidance legislation and the Settlements legislation.

9. Inheritance Tax (IHT) Reform and Excluded Property Trusts

A fundamental pillar in dismantling the 'non-dom' regime is the transition of Inheritance Tax (IHT) from a domicile-based model to a system grounded in tax residence. Under this new framework, taxpayers become subject to worldwide IHT once they meet a 10-year UK tax residence threshold. Furthermore, a 'tail' of up to 10 years of continued exposure is maintained after leaving the country. This tail is progressive and depends on the exact duration of UK residence, ranging from a minimum of 3 years for those resident between 10 and 13 years, up to a maximum of 10 years for longer stays. This reform directly impacts excluded property trusts, whose historical protections against IHT are severely restricted or eliminated for residents who exceed this temporal threshold.

10. Macroeconomic outlook and projected revenue

The decision to abolish the non-dom regime and replace it with the FIG framework serves a dual strategy: modernising the tax system to ensure the UK remains internationally competitive, attracting top talent and investment, while generating additional revenue for public services.

... Nevertheless, the tax advisory community and economic analysts view the real-world impact of this measure with caution. Various analysts and the Office for Budget Responsibility (OBR) warn that the final revenue is highly uncertain and volatile. This is due to the high sensitivity of wealthy taxpayers to changes in IHT and trust rules, which could trigger behavioral responses such as tax relocation to jurisdictions with longer-lasting or more stable expatriate tax regimes.

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Disclaimer: This article is for informational purposes only and does not constitute tax or legal advice. UK tax rules, particularly those relating to the Statutory Residence Test (SRT), offshore trusts, and anti-avoidance legislation (ToAA), are highly complex and their application depends on individual circumstances. It is strongly recommended to consult a qualified tax adviser before making wealth management decisions based on the new FIG regime.

Note on legislative status: The Inheritance Tax (IHT) reforms and the progressive scale described in this article were introduced in the Autumn Budget 2024 and their final details remain subject to the formal passage of the Finance Bill 2024-25.