Date updated: Wednesday 6th November 2024
Associate Bryony Anning discusses the Autumn Budget and the changes to income and capital gains tax for non-domiciled individuals – specifically, the introduction of the new four-year Foreign Income and Gains (FIG) regime.
Following the Autumn Budget, the concept of domicile disappears for tax purposes, and it is replaced by a system based only on residence. Domicile is a complex and nuanced concept, and so the move to a residence-based system is expected to introduce a greater level of certainty.
Importantly for non-domiciled individuals, from 6 April 2025, the remittance basis will be replaced with a new four-year Foreign Income and Gains regime, also known as ‘the FIG regime’.
Under the current rules, individuals who are UK resident but non-UK domiciled are able to claim tax relief on their foreign income and gains under the remittance basis. This means that only foreign income and gains which have been remitted (brought) to the UK are subject to tax. Foreign income and gains which are not remitted (brought) to the UK are outside the scope of UK income and capital gains tax.
Once an individual becomes domiciled in the UK, the remittance basis can no longer be claimed. For instance, if an individual has lived in the UK for 15 out of the last 20 tax years, they will be deemed domiciled in the UK.
Next year, from 6 April 2025, individuals will be able to opt in to the four-year FIG regime. Under this regime, an individual’s foreign income and gains will not be assessed by HMRC for the first four years of residence in the UK. During this period, foreign income and gains can be remitted to the UK tax-free. However, after that person has been resident in the UK for four years, their worldwide income and gains will become subject to UK income and capital gains tax.
This is significant news for people coming to live in the UK. Importantly, for those already living in the UK, the new FIG regime will not be available to individuals who have been resident in the UK in the previous consecutive ten tax years.
Careful consideration should be taken before opting in to the FIG regime, because it will result in the loss of certain tax allowances – including the personal allowance and annual exempt amount, and there are ongoing reporting obligations. If the bulk of income and gains is expected to arise overseas, then this may be proportionate. However, this will depend on the individual’s circumstances.
In light of these changes, there may be a window of time in which it is advisable to complete certain tax planning exercises. For instance, you may wish to sell an overseas property on which you expect to realise a substantial gain, before becoming liable to UK tax on your worldwide income and gains.
We would strongly advise consulting with a cross-border specialist to check that there are no adverse overseas tax consequences, and to make sure that you are complying with reporting obligations both in the UK and overseas.
For those who are not eligible to opt in to the FIG regime, but who have previously claimed the remittance basis, there will be transitional provisions. These include the Temporary Repatriation Facility, which provides a lower rate of tax payable for the next three tax years, and the rebasing of foreign assets.
If you would like advice on your own tax position and planning opportunities following the Autumn Budget, please contact the International & Cross-Border team.