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FIG Regime: A Replacement for Remittance Basis in the UK

Published by Susan Basnet
Published Date: April 25, 2024
Categories: FIG Regime

Whether you are non-domiciled individual currently residing in the UK or someone who was previously a non-UK resident but has since moved to the UK, HMRC has introduced a revised plan set to take effect from 6 April 2025.

This article will explore the implications of this new regime for individuals in these situations and also how the Overseas Workday Relief (OWR) will be affected.

Overview of the Change 

UK resident individuals who are not domiciled or deemed domiciled in the UK currently have the option to pay  tax on the remittance basis. This means that UK tax is only paid on foreign income and gains to the extent that these are brought to the UK in the tax year. Alternatively, they can opt for the arising basis, where UK tax is payable on worldwide income and gains arising in the tax year.

However, the current mechanism is soon to be abolished from 6 April 2025, and be replaced by the Foreign Income and Gains (FIG) regime. Under this regime, Foreign Income and Gains will be allowed to be treated as outside the scope of the UK taxation for four tax years.

Eligibility Criteria and Making the Claim

The primary criterion for the FIG regime to be applicable to an individual is that he/she must have been a non-UK tax resident for 10 years before becoming the tax resident in the UK. Whether the individual was a tax resident in each year will be determined by the Statutory Residence Test (SRT).

FIG regime

The FIG regime will apply to individuals:

  • Born in the UK, or those who consider the UK as their permanent home but have been absent from the UK for ten tax years or more,
  • Coming to the UK for the first time

As previously mentioned, eligible individuals, if the claim is made, can remit the funds from foreign income to the UK without incurring any additional charges. However, the claim must be made for each individual year to which it relates.

Similarly, individuals can claim to use FIG for any tax year of their choice. For example, an individual who makes a claim for the new 4-year FIG regime in year 1 but chooses not to make a claim for year 2 will still be able to claim for year 3 and year 4.

Sounds too good, right? Well, it is but the catch here is that individuals choosing to be taxed under the 4-year FIG regime will lose Personal Allowance entitlement and the Capital Gains Tax (CGT) annual exempt amount for those years.

Impact on Overseas Workdays Relief (OWR)

Under the current system, foreign earnings are only taxed in the year they are remitted to the UK. This arrangement is referred to as Overseas Workday Relief (OWR).

Following the announcement, the new OWR will be accessible for the initial three tax years of UK residency. Employees eligible for OWR in 2023-24 or 2024-25 for their first year upon returning to the UK should still qualify for OWR for the entire three years. However, individuals arriving in the UK from 2025-26 and qualifying for the FIG regime will not be eligible to claim the OWR. Similar to the existing rules, the new OWR will not provide relief for National Insurance Contributions (NICs).

Individuals Not Qualifying for the  4-Year FIG Regime.

Individuals not qualifying for the new 4-year FIG regime will receive a one-year reduction in the taxable foreign income when moving from the remittance basis to the arising basis from 6 April 2025.

Such individuals will only pay tax on 50% of the foreign income arising in 2025-26. In the subsequent years, the reduction will not apply.

Note: The  reduction will only apply to foreign income and not to foreign chargeable gains.

Capital Gains Tax (CGT) Rebasing Rule

Individuals not eligible for the new 4-year FIG regime will be taxed on foreign gains in the standard way.

However, Individuals who are neither UK domiciled, nor UK deemed domiciled by 5 April 2025 but have claimed the remittance basis will be subject to transitional rules. If such individuals dispose of a foreign asset on or after 6 April 2025, they will be able to elect to rebase that asset to its value on 5 April 2019.  

Temporary Repatriation Facility (TRF)

Where the foreign income gains that arose in a year when the individual was taxed on the remittance basis are remitted to the UK in the tax years 2025/26 and 2026/27, a new 12% rate of tax will be introduced for such remittances.

However, foreign income gains arising pre-6 April 2025 and remitted to the UK post 2027/28 will be taxed at normal tax rates.

Summary

The introduction of the Foreign Income and Gains (FIG) regime marks a significant shift in the UK tax landscape for non-domiciled individuals. While it offers certain advantages such as a four-year tax exemption on foreign income and gains, it also comes with limitations, including the loss of Personal Allowance entitlement and the capital gains tax annual exempt amount for those years.

Moreover, the changes to Overseas Workdays Relief (OWR) and the transitional rules for individuals not qualifying for the FIG regime add complexity to the tax planning process. Overall, navigating these changes will require careful consideration and proactive tax planning to ensure compliance and maximise tax efficiency.

Have questions about the UK Remittance basis? 

Contact us today for efficient and hassle-free assistance.

Susan Basnet
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