The non-domiciled rules that have applied up to and including 2024/25 UK tax year will be abolished with effect from April 2025.
Main features of the new regime
- New arrivals to the UK will be able to claim not to pay tax on their foreign income and gains during their first four tax years of residency, provided they have been a non-UK resident for the previous 10 tax years.
- Where a claim is made, the Personal Allowance for Income Tax and Annual Exempt Amount for CGT will be lost. This broadly only impacts those with adjusted net income below £125,140.
- Eligible employees will also be able to claim Foreign Employment Income Relief (renamed from Overseas Workday Relief) in their first four (instead of three) tax years of residency, which provides UK tax relief in respect of employment income received as regards to overseas duties. The relief will not rely on the income earned not being brought into or used in the UK. The amount of relief claimed annually will be limited to the lower of £300,000 or 30% of the employee’s qualifying employment income per tax year.
- The relief will be claimed by electing to claim it on the UK tax return as long as the individual qualifies under the new foreign income and gains (FIG) regime.
- There will be a simplified process for operating Foreign Employment Income Relief via payroll (via a new notification and auto-acknowledgement process).
- Transitional rules will allow employees claiming Overseas Workday Relief currently (i.e. prior to 6 April 2025) who are not eligible for the new FIG regime – to continue to claim Foreign Employment Income Relief to the end of their third tax year of residence. The annual £300,000 / 30% cap on the relief will not apply to these individuals.
- Transitional rules will allow those who are eligible under both regimes to claim Foreign Employment Income Relief for four tax years. The annual £300,000 / 30% cap on the relief will not apply to these individuals.
Transitional rules mean that Foreign Employment Income on trailing income* related to a pre-2025/26 tax year will still be subject to the old Remittance Basis rules (i.e. must be paid and kept and used only outside of the UK for the relief to apply).
Note: ‘Trailing income’ typically refers to income that an individual receives in a tax year that has been sourced over the course of the prior tax year(s). For example, a bonus payment received in 2025/26 UK tax year with a performance period matching the 2024/25 UK tax year will still be subject to the old Remittance Basis rules. Plus, the portion of the bonus relating to the part of the performance period qualifying for Overseas Workday Relief must be kept outside of the UK for the relief to apply.
- Current UK resident non-UK domiciled individuals will have a three-year (instead of two-year) repatriation facility to allow foreign income and gains arising in the tax years up to and including 2024/25 to be remitted to the UK and taxed at a flat 12% tax rate. This facility will be expanded in scope. Historic remittances made after the three-year window that starts on 6 April 2025 would be taxed at standard income and capital gains tax rates.
- If the Remittance Basis has been claimed and the individual is not UK domiciled by 6 April 2025, there would be an option to rebase the value of foreign capital assets to the value on 5April 2017 (instead of 5 April 2019), subject to conditions. These dates are related to previous changes in legislation.
- The temporary 50% exemption for individuals who were Remittance Basis users on the taxation of foreign income in the first tax year of the new regime (2025/26) is scrapped and will not apply. Foreign income and capital gains in that year would be taxable in full.
According to the Department of Business & Trade figures on inward investment – the number of Foreign Direct Investment projects has been steadily decreasing from 1,852 in 2019/20 to 1,555 in 2023/24. A competitive inbound expatriate regime is key to ensuring that the decreasing inward investment trend is reversed.
The new Foreign Income and Gains regime is beneficial in terms of simplifying rules around qualifying individuals and removing the requirement to keep overseas income and gains outside of UK. The longer duration of the Overseas Workday Relief may also be attractive to overseas companies seeking to establish their foothold in Europe by way of the United Kingdom.
How we can help
Navigating the transitional arrangements
A change in the regime raises issues that may affect the tax position of any individual who is caught within the transitional arrangements from 6 April 2025. Individuals who have been claiming the remittance for less than four years should contact us for advice to understand whether their tax position may materially change during the transition.
Planning
The use of the repatriation facility may be of interest for those who wish to remit their historic income and gains to the United Kingdom. You should contact us to discuss your tax planning steps for future under the incoming regime.
UK assignments
For companies planning to send their workforce to the UK on assignment, it is important to factor in this new tax regime on the impact on assignment costs and ROI expectations. We are here to guide you on what considerations to consider while planning your international assignment programme.
