How the UK’s FIG regime applies and impacts residents, non-residents

In November 2024, Chancellor of the Exchequer, Rachel Reeves, made sweeping changes that have continued to impact foreign nationals living and working in the UK and British citizens living abroad.

In a webinar explaining the tax reforms presented by Pitcher Partners partner Alison Wood and Hall & Wilcox partner James Whiley, they unpacked how the changes have caused an impact and how those have become apparent in today’s society.

The changes made by Reeves included reforms to residency rules effective from April 2025 and included the abolition of the domicile concept, a four-year exemption for foreign income and gains (FIG) regime if a non-domicile, a four-year exemption for new UK residents after 10 years abroad, loss of personal allowances if claiming the FIG regime, transitional relief, and asset rebasing.

Wood said the key change was the abolition of the concept of domicile and noted this change was “indeed simpler and some would say far less subjective”.

Wood said it was a legal common law concept and was very distinct from residency and nationality, which have been tweaked over recent years.

“Historically, non-domiciles in the UK have benefited from not paying tax on unremitted foreign income and capital gains. Which has come to a head after some figures within the UK were leaked to have been enjoying non-dom benefits and not paying UK tax,” she said.

Wood shared that changes to the rule had been made in 2008 with the introduction of the remittance basis charge and again in 2015 with an additional cost layer added.

“Domicile also had an impact on inheritance tax and different rules applied. It was only for inheritance tax that you could actually be deemed domiciled and caught on your worldwide assets, or caught on a worldwide asset basis,” she said.

“When it came to inheritance tax, under the old rules before April 2017, if you’d been resident in the UK for 17 of the previous 20 years, this meant your worldwide estate was subject to UK inheritance tax.”

From 2017 to 5 April 2025, the threshold was reduced, and an individual was deemed domiciled if they were a UK resident for 15 of the previous 20 years, which impacted a significant number of people.

It was also shared that in April 2017, a new category, formerly domiciled resident, was introduced which meant if someone was born in the UK with a UK domicile of origin, and later acquired a domicile of choice somewhere else, but then returned to the UK and resumed tax residency in one of the two previous tax years, then they were automatically treated as domiciled in the UK for inheritance tax, income taxes and capital gains taxes.

However, from 6 April 2025, the rules changed with the abolition of the domicile concept and the replacement of FIG.

Wood said the FIG was available for the first four years of UK residence after 10 years of non-residence. FIG was not taxed in the UK even if remitted, claims must be made annually via tax return and a loss of personal allowance and CGT exemption during claim years.

“It’s clear that the FIG regime is perhaps easier to manage, but it’s vastly limited,” Wood said.

“Foreign nationals moving to the UK for work or lifestyle reasons after a long period abroad, or if they’ve never worked in the UK, can avoid tax on their foreign income for the first four consecutive UK tax years of residency.”

High-net-worth individuals, long-term residents and long-term non-residents could also benefit from the FIG regime.

According to Wood, it was clear that no tax for the first four years in the UK was a clear advantage, as it was much easier to manage and maintain; however, the personal allowance would be lost and the capital gains tax annual exemption amount.

If looking to move to the UK, individuals could look into the eligibility requirements for transitional relief of the temporary repatriation facility.

“Under the FIG regime, there are some winners as it definitely is a much easier compliance burden, UK citizens that have been away for an extended period can return and benefit from the regime, and there is some transitional relief,” Wood said.

“The losers are clearly long-term UK residents with substantial assets offshore, as the tax bill will be significantly higher. If you’re going to the UK, it’s really important to understand your eligibility for the FIG regime to optimise your tax outcomes.”