UK Chancellor Rachel Reeves MP, the first woman to hold that position, delivered the new Labour government’s first Budget on 30 October 2024. As part of the Budget announcements, Chancellor Reeves confirmed the abolition of the current non-dom regime from April 2025, and the introduction of a new residence-based foreign income and gains (FIG) regime. The plan suggested a degree of continuity with the preceding Conservative government’s Spring Budget, announced in March 2024. Nonetheless, there are also some key revisions to the previously outlined proposals.
The term “non-doms” generally refers to individuals born overseas who do not consider the UK their permanent home (not domiciled in the UK), and for whom favourable tax treatment of foreign income and gains has been available, subject to tax levies of varying amounts after seven years of UK tax residency, and eventually ceasing to apply after 15 years of UK tax residency. Non-doms’ foreign income and gains have not been subject to UK tax on the proviso that they were received outside the UK and not remitted to the UK.
The discussion below is based on information made available on the day of the Autumn Budget, and should not be viewed as exhaustive, and will be updated as additional HMRC guidance is issued.
To be eligible for the FIG regime, an individual must have been non-UK tax resident for a period of 10 UK tax years immediately prior to their arrival in the UK. The FIG regime will apply equally to employees who were born in the UK, or who consider the UK as their permanent home, but have been absent from the UK for 10 tax years or more as it does to employees who come to the UK for the first time. British nationals will be eligible providing they meet all other conditions.
IMEs will need to make a claim to use the new FIG regime. They will be able to choose which year(s) they claim for and will not need to make a claim for every year if that would not be beneficial. They will also be able to claim on a source-by-source basis if they do not want to claim relief on all sources of foreign income and gains. Claims will be made via the UK tax return, similar to how the remittance basis is currently claimed.
IMEs who on 6 April 2025 have been tax resident in the UK for less than four tax years (after a period of 10 years of non-UK tax residence prior to their arrival) will be able to use the FIG regime for any remainder of the four-tax year FIG term. IMEs who arrived in the UK and claimed OWR prior to 6 April 2025, but are ineligible for the new FIG regime will still be able to claim OWR for three years. OWR under the FIG regime will be subject to an annual financial limit: the lower of 30% of ‘qualifying’ employment income or GBP 300,000 per tax year. However, IMEs that are partway through their OWR period on 6 April 2025 will not be subject to these financial limits. From 6 April 2025, individuals who have been taxed on the remittance basis in prior tax years will be able to elect to pay tax at a reduced rate of 12% on remittances of pre-6 April 2025 unremitted foreign income and gains under a new TRF that will be available for tax years 2025-26 and 2026-27, rising to 15% in 2027-28.
There is an exception to the general rule whereby the remittance basis will still be relevant for earnings received on or after 6 April 2025. This exception will apply when there are incentive payments (cash and employer-related securities) that have an earnings period (performance period) that includes time prior to 6 April 2025. For such payments, OWR will be available only on the portion relating to the period prior to 6 April 2025 if it is received and retained outside the UK.
Eligible IMEs will not pay tax on foreign income and gains in the first four tax years after becoming UK resident if they make an annual claim for the FIG regime. They will be able to remit these funds to the UK without any tax charges, provided the funds arose after 5 April 2025. They will pay tax on UK income and gains. OWR is being retained but will now be available for the first four tax years of UK residence in line with the FIG regime. IMEs will no longer have to keep funds relating to foreign income and gains offshore and, therefore, the new OWR will provide relief from income tax whether or not these earnings are brought to the UK.
If an individual leaves the UK temporarily during the four-year period, they will be able to make a claim under the four-year FIG regime for any of the qualifying tax years remaining on their return to the UK. This would equally apply to anyone that arrived in the UK before 6 April 2025 after a 10-year period of non-UK residence, as well as to someone arriving on or after 6 April 2025.
Individuals who opt for the FIG regime will lose their annual exemption for capital gains tax purposes (currently GBP 3,000) and their personal allowance (currently GBP 12,570). This is also the case under the current remittance basis rules, and IMEs who earn more than GBP 100,000 are already subject to the gradual reduction of the personal allowance to nil, once their earnings reach GBP 125,140. IMEs arriving in the UK on or after 6 April 2025, who haven’t been resident outside the UK for at least 10 UK tax years, will no longer be eligible for overseas workday relief nor the wider benefits of the FIG regime.
OWR being available for an additional year is positive news for employers, as this will provide an additional year of relief for employers of tax-equalised or partially tax-protected IMEs. The removal of the restriction on bringing foreign earnings to the UK also simplifies the tax system and makes claiming the relief less onerous. Employers will still be able to operate PAYE on a reduced percentage of earnings for IMEs eligible for OWR, and HMRC are implementing steps to make the approval process simpler.
However, the new financial limit, and the way this limit applies to incentive payments for performance periods spanning earlier UK tax years, may impact the relief available for high-earning executives as well as require employers to simultaneously monitor current and prior tax year financial limits for OWR purposes when relief is provisionally administered via the payroll. Also, the exemption for travel costs incurred by non-domiciled employees that are paid for by employers when they come to work in the UK will be reduced from five years to four years to align with the four-year FIG regime.
The rules in relation to financial limits for OWR claims, as well as the election that must be made when remitting income under the temporary repatriation facility, will bring complexity to tax return filing for IMEs as well as an administrative burden in relation to tracking income claimed or remitted. This may have an additional impact on employers when employees are tax-equalised or tax-protected.
Employers should now be considering how to effectively communicate these changes to their IMEs, as well as revisiting their global mobility tax policy in view of the potential attractiveness to IMEs of remitting previously unremitted (and untaxed) earnings because of the reduced 12% tax rate, which will rise to 15% in the third year. The timing of this will be particularly relevant to U.S. taxable IMEs because of the way the foreign tax credit is claimed for U.S. tax purposes.
Employers of IMEs should seek guidance on the timing of assignments for clarity on the implications of the current non-dom regime and how it may be impacted from 6 April 2025. Advice will also be required on the application of the transitional rules and capital gains tax rebasing on UK-based IMEs.
There may be some situations where high-earning executives choose to move to the UK prior to 6 April 2025 as they will then be eligible for OWR, potentially still for four UK tax years, without the annual financial limit. There may also be situations in which executives seek to remain non-resident outside the UK or treaty non-resident outside the UK so that they are not restricted in the amount of earnings that can be considered exempt from UK tax.
We would recommend that employers do not delay planning for these significant and soon-to-be introduced changes. If you would like assistance in assessing the impact on your business or supporting you and your IMEs ahead of the start of the FIG regime in April 2025, please contact your usual BDO contact.
Charlotte Hobrough
BDO in United Kingdom
The term “non-doms” generally refers to individuals born overseas who do not consider the UK their permanent home (not domiciled in the UK), and for whom favourable tax treatment of foreign income and gains has been available, subject to tax levies of varying amounts after seven years of UK tax residency, and eventually ceasing to apply after 15 years of UK tax residency. Non-doms’ foreign income and gains have not been subject to UK tax on the proviso that they were received outside the UK and not remitted to the UK.
The discussion below is based on information made available on the day of the Autumn Budget, and should not be viewed as exhaustive, and will be updated as additional HMRC guidance is issued.
What are the highlights?
- The chancellor confirmed the end of the ‘domicile’ regime from April 2025, and the implementation of new measures relevant international mobile employees (IMEs).
- The FIG regime will allow foreign income and gains to be treated as outside the scope of UK taxation for up to four tax years. Overseas Workdays Relief (OWR) eligibility will be extended from three to four UK tax years, in line with the duration of the FIG regime, but will be subject to financial limits per tax year. There will be some transitional rules to consider for OWR for employees arriving in the UK before 6 April 2025.
- Full eligibility for the FIG regime (four tax years) will be based on non-UK tax residence in the 10 UK tax years prior to establishing UK tax residency.
- IMEs already resident in the UK on 5 April 2025, who are still within their first four years of UK tax residence and otherwise meet the eligibility criteria can access the FIG regime until they have reached the full four-year period.
- IMEs will be able to elect into the FIG regime on a year-by-year basis, but will lose their tax-free personal allowance and annual exemption for capital gains tax.
- In contrast to the non-dom regime, under the FIG regime, foreign income and gains arising from 6 April 2025 can be brought to the UK tax-free.
- The Temporary Repatriation Facility (TRF) will apply during the 2025/26, 2026/27, and 2027/28 UK tax years; previously this was expected to be applicable for only two UK tax years.
- Under the TRF, IMEs will be able to remit pre-6 April 2025 (untaxed) foreign income and gains and only be liable to a 12% tax rate during the 2025/26 and 2026/27 UK tax years, rising to 15% in the 2027/28 year
- A capital gains tax rebasing of non-UK-sited assets (held on 5 April 2019) will be available to those who have historically claimed the remittance basis and remain neither UK domiciled nor deemed domiciled by 5 April 2025.
- UK tax return reporting may become more complex from the 2025/26 UK tax year as HMRC require foreign income and gains to be identified and quantified even if a FIG election has been made so that they are not subject to UK tax.
What is happening to the non-dom regime and what is being introduced to replace it?
The sun will set on the current non-dom regime on 5 April 2025. It will be replaced on 6 April 2025 by the FIG regime, which will still allow IMEs crucial access to valuable expatriate tax concessions. IMEs who qualify for the FIG regime will not pay tax on foreign income and gains arising in the first four tax years after becoming UK tax resident and will be able to bring these funds to the UK tax-free. They will pay tax on UK income and gains from the first year of UK residence. After the four-year FIG regime, the individual will be taxed on worldwide income and gains, with foreign tax credits available as applicable. An election will be required to be made annually.
Who will be eligible for the FIG regime?
To be eligible for the FIG regime, an individual must have been non-UK tax resident for a period of 10 UK tax years immediately prior to their arrival in the UK. The FIG regime will apply equally to employees who were born in the UK, or who consider the UK as their permanent home, but have been absent from the UK for 10 tax years or more as it does to employees who come to the UK for the first time. British nationals will be eligible providing they meet all other conditions.
How will a claim for the FIG regime be made?
IMEs will need to make a claim to use the new FIG regime. They will be able to choose which year(s) they claim for and will not need to make a claim for every year if that would not be beneficial. They will also be able to claim on a source-by-source basis if they do not want to claim relief on all sources of foreign income and gains. Claims will be made via the UK tax return, similar to how the remittance basis is currently claimed.
What does this mean for IMEs present in the UK prior to 6 April 2025?
IMEs who on 6 April 2025 have been tax resident in the UK for less than four tax years (after a period of 10 years of non-UK tax residence prior to their arrival) will be able to use the FIG regime for any remainder of the four-tax year FIG term. IMEs who arrived in the UK and claimed OWR prior to 6 April 2025, but are ineligible for the new FIG regime will still be able to claim OWR for three years. OWR under the FIG regime will be subject to an annual financial limit: the lower of 30% of ‘qualifying’ employment income or GBP 300,000 per tax year. However, IMEs that are partway through their OWR period on 6 April 2025 will not be subject to these financial limits. From 6 April 2025, individuals who have been taxed on the remittance basis in prior tax years will be able to elect to pay tax at a reduced rate of 12% on remittances of pre-6 April 2025 unremitted foreign income and gains under a new TRF that will be available for tax years 2025-26 and 2026-27, rising to 15% in 2027-28.
So, will the remittance basis not apply to any earnings received on or after 6 April 2025, and will there be no situations in which an IME would need to be paid offshore to be able to claim OWR?
There is an exception to the general rule whereby the remittance basis will still be relevant for earnings received on or after 6 April 2025. This exception will apply when there are incentive payments (cash and employer-related securities) that have an earnings period (performance period) that includes time prior to 6 April 2025. For such payments, OWR will be available only on the portion relating to the period prior to 6 April 2025 if it is received and retained outside the UK.
What does this mean for IMEs that arrive in the UK after 6 April 2025?
Eligible IMEs will not pay tax on foreign income and gains in the first four tax years after becoming UK resident if they make an annual claim for the FIG regime. They will be able to remit these funds to the UK without any tax charges, provided the funds arose after 5 April 2025. They will pay tax on UK income and gains. OWR is being retained but will now be available for the first four tax years of UK residence in line with the FIG regime. IMEs will no longer have to keep funds relating to foreign income and gains offshore and, therefore, the new OWR will provide relief from income tax whether or not these earnings are brought to the UK.
What happens if IMEs leave the UK and return at a later date?
If an individual leaves the UK temporarily during the four-year period, they will be able to make a claim under the four-year FIG regime for any of the qualifying tax years remaining on their return to the UK. This would equally apply to anyone that arrived in the UK before 6 April 2025 after a 10-year period of non-UK residence, as well as to someone arriving on or after 6 April 2025.
Are there any downsides to opting in to the FIG regime?
Individuals who opt for the FIG regime will lose their annual exemption for capital gains tax purposes (currently GBP 3,000) and their personal allowance (currently GBP 12,570). This is also the case under the current remittance basis rules, and IMEs who earn more than GBP 100,000 are already subject to the gradual reduction of the personal allowance to nil, once their earnings reach GBP 125,140. IMEs arriving in the UK on or after 6 April 2025, who haven’t been resident outside the UK for at least 10 UK tax years, will no longer be eligible for overseas workday relief nor the wider benefits of the FIG regime.
What does the FIG regime mean for employers of IMEs?
OWR being available for an additional year is positive news for employers, as this will provide an additional year of relief for employers of tax-equalised or partially tax-protected IMEs. The removal of the restriction on bringing foreign earnings to the UK also simplifies the tax system and makes claiming the relief less onerous. Employers will still be able to operate PAYE on a reduced percentage of earnings for IMEs eligible for OWR, and HMRC are implementing steps to make the approval process simpler.However, the new financial limit, and the way this limit applies to incentive payments for performance periods spanning earlier UK tax years, may impact the relief available for high-earning executives as well as require employers to simultaneously monitor current and prior tax year financial limits for OWR purposes when relief is provisionally administered via the payroll. Also, the exemption for travel costs incurred by non-domiciled employees that are paid for by employers when they come to work in the UK will be reduced from five years to four years to align with the four-year FIG regime.
The rules in relation to financial limits for OWR claims, as well as the election that must be made when remitting income under the temporary repatriation facility, will bring complexity to tax return filing for IMEs as well as an administrative burden in relation to tracking income claimed or remitted. This may have an additional impact on employers when employees are tax-equalised or tax-protected.
Employers should now be considering how to effectively communicate these changes to their IMEs, as well as revisiting their global mobility tax policy in view of the potential attractiveness to IMEs of remitting previously unremitted (and untaxed) earnings because of the reduced 12% tax rate, which will rise to 15% in the third year. The timing of this will be particularly relevant to U.S. taxable IMEs because of the way the foreign tax credit is claimed for U.S. tax purposes.
What planning opportunities may there be?
Employers of IMEs should seek guidance on the timing of assignments for clarity on the implications of the current non-dom regime and how it may be impacted from 6 April 2025. Advice will also be required on the application of the transitional rules and capital gains tax rebasing on UK-based IMEs.There may be some situations where high-earning executives choose to move to the UK prior to 6 April 2025 as they will then be eligible for OWR, potentially still for four UK tax years, without the annual financial limit. There may also be situations in which executives seek to remain non-resident outside the UK or treaty non-resident outside the UK so that they are not restricted in the amount of earnings that can be considered exempt from UK tax.
Who can we talk to?
We would recommend that employers do not delay planning for these significant and soon-to-be introduced changes. If you would like assistance in assessing the impact on your business or supporting you and your IMEs ahead of the start of the FIG regime in April 2025, please contact your usual BDO contact.Charlotte Hobrough
BDO in United Kingdom