Global Employer Services News

United Kingdom - Employers and internationally mobile employees – impact of changes to non-domicile regime

After much speculation, UK Chancellor of the Exchequer Jeremy Hunt on 6 March announced the abolition of the current non-domicile (remittance basis) tax regime in the Spring 2024 budget, a change many employers will have to grapple with for years to come.

The term non-doms generally refers to individuals born overseas who do not consider the UK their permanent home (in other words, are not domiciled in the UK). These individuals’ foreign income and gains are currently taxed on a remittance basis, so that only the income brought into the UK is taxed in the UK. This favourable tax treatment of foreign income and gains has been available for the first seven years of UK tax residency; after the seventh year, a tax levy is imposed, and after 15 years of UK tax residency the favourable treatment ceases to apply.

The comments below are based on information made available on Budget Day and should not be viewed as exhaustive. There will, no doubt, be much to absorb from the final legislation. However,  the questions addressed below will give readers a head start in coming to grips with the changes.
  • The Chancellor announced the abolition of the non-dom regime from 6 April 2025, and its replacement with the foreign income and gains (FIG) regime.
  • The FIG regime will allow foreign income and gains to be treated as outside the scope of UK taxation for four tax years, with overseas workdays relief (OWR) remaining restricted to three UK tax years.
  • Eligibility for the FIG regime will be based on non-UK tax residence in the 10 UK tax years prior to establishing UK tax residency.
  • Internationally mobile employees (IMEs) will be able to elect into the FIG regime on a year-by-year basis, but will lose their personal allowance and annual exemption (capital gains tax).
  • In contrast to the non-dom regime, under the FIG regime, foreign income and gains can be brought to the UK tax free.
  • Transitional rules will apply during the 2025/26 and 2026/27 UK tax years.
  • 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.
What is happening to the non-dom regime and what is replacing 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 foreign income and gains (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 in the UK on his or her worldwide income and gains.
Who will be eligible for the FIG regime?
To be eligible for the FIG regime, an individual must have been a non-UK tax resident for a period of 10 years. Current guidance states that the Statutory Residence Test (SRT) will be used to determine tax residence for each tax year, and that split year and treaty residence years will be ignored.

The FIG regime will apply equally to employees who were born in the UK, and/or who consider the UK 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.
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 claim for every year, if it’s not beneficial for them. The guidance does not explain how claims will be made, but presumably it will be done via the tax return, as the remittance basis is claimed at present.
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) will be able to use the FIG regime for any remainder of the four-year FIG regime term. This means that employees can potentially still access the FIG regime even if they arrived before 6 April 2025, as long as they were non-UK resident for 10 years before arriving in the UK.

IMEs who are eligible for OWR in 2023/24 will still be able to claim OWR for the full three tax years, even if they are not eligible for the FIG regime in 2025/26. However, those arriving in 2025/26 will not be able to claim OWR if they are not eligible for the FIG regime.

Individuals who move from the remittance basis to the arising basis (taxed on worldwide income and gains) on 6 April 2025 and are not eligible for the new four-year FIG regime will pay tax, for 2025-2026 only, on 50% of their foreign income arising in 2025/26. This reduction does not apply to foreign chargeable gains. For 2026-27 and onwards, tax will be due on all their worldwide income in the normal way.

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 foreign income and gains under a new Temporary Repatriation Facility (TRF) that will be available for tax years 2025-26 and 2026-27. Further guidance will be issued regarding relaxation of the mixed fund ordering rules to make it easier to remit funds to the UK under this transitional relief.
What does this mean for IMEs arriving 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 a claim for the FIG regime. They will be able to remit these funds to the UK without any tax charges, and will pay tax on UK income and gains.

OWR is being retained for the first three tax years of UK residence, but with simplifications. 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 these earnings are brought to the UK or not.
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 upon their return to the UK. However, this will not apply to anyone that was resident in the 2023/24 UK tax year and returns to establish UK tax residency from 6 April 2025 or later, unless they have been non-resident in the UK for 10 UK tax years before they return to the UK.
Are there any downsides to opting into the FIG regime?
Individuals who opt for the FIG regime will lose their annual exemption for capital gains tax purposes (currently GBP 6,000) and their personal allowance (PA, currently GBP12,570). This is also the case under the current remittance basis rules, and IMEs earnings in excess of GBP 100,000 are already subject to the gradual reduction of the PA to nil, once their earnings reach GBP 125,140.

IMEs arriving in the UK from 6 April 2025, who have not been resident outside the UK for at least 10 UK tax years, will no longer be eligible for OWR or the broader benefits of the FIG regime. Currently, OWR is only restricted to non-doms who have been non-resident in the three UK tax years prior to arriving in the UK.
What are the implications for income/gains other than from employment?
The FIG regime applies to all foreign sources of income and gains. For individuals who are neither UK domiciled, nor UK deemed domiciled by 5 April 2025, who’ve previously claimed the remittance basis, foreign assets, including shares in their overseas employers, will require an election to be rebased to their value as of 5 April 2019, and meet other currently unstipulated conditions.

There will be a consultation on how individuals become liable to inheritance tax given this was previously based on an individual’s domicile status; going forward, it will be based on the length of UK tax residency.
What does the FIG regime mean for employers of IMEs?
We envisage no significant adverse impact to employers of IMEs, and expect HMRC to allow applications for section 690 directions, or a new equivalent, so employers can operate PAYE on a reduced percentage of earnings for IMEs eligible for OWR.

Due to the three-tax year availability of OWR, we expect no increased UK tax burden for employers of tax equalised or partially tax protected IMEs. The employer tax burden may in fact decrease due to the removal of the restriction on bringing foreign earnings to the UK.

Employers should revisit their global mobility tax policy in view of the potential attractiveness to IMEs of remitting previously unremitted (and untaxed) earnings as a result of the reduced 12% tax rate. The timing will be particularly relevant to U.S. taxable IMEs given the way a foreign tax credit is claimed for U.S. tax purposes.

There is no change to the National Insurance contributions (NICs) position on earnings relating to overseas workdays. The earnings relating to both UK and non-UK workdays are still liable to NIC.

We await clarification of how other expatriate tax reliefs available to non-doms, such as via the foreign travel rules (relocation travel, VISA application, home leave, and travel between overseas and a UK workplace) will be impacted. Previously, these measures were available to non-doms for up to five years, and BDO’s representation to HMRC will be that relief for at least this duration should be retained under the FIG regime. We await details of how the rule changes will impact UK resident, and currently non-dom IMEs, and their employers, when dual contract arrangements are in place.
What are the next steps before the FIG regime rules are finalised?
Draft legislation will be prepared and HMRC will publish it for comment. BDO will make representations on the draft rules via HMRC’s Expat Forum to ensure that HMRC delivers on their promise of a ‘simpler and more attractive’ regime for IMEs.
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 this will be impacted from 6 April 2025. Advice will also be required on the application of the transitional rules on UK-based IME’s once further details of the rules are known.

The Temporary Repatriation Facility will have a potential impact when double tax treaties (DTTs) the UK has entered into with other jurisdictions contain provisions to exempt income from tax in the other jurisdictions only if that income is remitted to the UK. UK treaties that contain such provisions include those with France and Germany. The implications of the timing delay between the receipt of the income and subsequent remittance to the UK will need to be reviewed to establish the tax implications. Depending on the applicable tax policy, in certain circumstances these scenarios could result in additional tax burden or refunds to the employer.
Are the changes a good idea?
We consider it important for the UK to retain tax concessions in a competitive global landscape for internationally mobile employees, as a measure to attract talent and encourage inward investment. It is thus reassuring that the government have recognised this in the new proposals. We also acknowledge that the government listened to our feedback that the previous remittance rules were far too complex and counterproductive to the UK economy by discouraging IMEs from bringing money to spend in the UK. Pending the release of further details of the FIG regime, there may be potential for additional legitimate tax savings for employers, and their IMEs, who seek professional guidance.
Who can we talk to?
If you would like any assistance in relation to the proposed FIG regime, please contact Andy Kelly or Charlotte Hobrough.

Andy Kelly
Charlotte Hobrough
BDO in United Kingdom
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