Amid much publicity, the UK abolished its historic "non-dom" rules and remittance basis for taxation purposes from April 2025. For those not within transitional rules or reliefs, the default position now for a UK tax resident is being subject to UK income tax and capital gains tax on their worldwide income and gains. Additionally, if classed as a long-term resident, UK inheritance tax (IHT) will apply to their worldwide assets, a seismic change to the previous rules. Long-term residents are those who have been UK resident for ten out of the previous twenty tax years.
As a way of attracting new residents, the UK government introduced the Foreign Income and Gains (FIG) regime. This offers both first-time residents and those who are returning to the UK (after at least ten consecutive tax years of non-UK residence) an unlimited exemption from UK income tax and capital gains tax on their foreign income and gains. There is no fee to benefit from the regime, which lasts for the first four tax years of residence. No financial limit applies to the foreign income and gains that are exempt under the regime. Such funds can be freely used in the UK – a significant benefit compared to the old remittance basis provisions. Taxpayers will need to claim the relief in their tax return, detailing the foreign income and gains which they wish to benefit from the regime. After the four tax years of the regime elapse, those who remain UK resident will become subject to UK income and capital gains tax on their worldwide income and gains.
Initially, there was concern that four tax years just weren't long enough, in the context of families moving to the UK with housing and schooling considerations also potentially at play. However, with proactive planning, those who have benefitted from the four-year FIG regime can continue to benefit from a more benign UK tax regime for IHT purposes (compared to long-term residents) until their tenth year of UK tax residence. During that nine-year initial period, individuals will still not be subject to IHT on their non-UK assets, making staying on post the four-year FIG regime a much more attractive prospect. Added to that, with careful planning, individuals can minimise their exposure to UK income tax and capital gains tax by proactively planning capital events to arise within the four-year FIG period, and by forward planning to mitigate or defer income and gains by careful asset structuring. Consideration of using, among other structures, insurance wrappers, family investment companies and trusts will be key to such planning.
While nine years may be enough for some families, if your situation changes and you need to remain UK tax resident for a little longer, all is not lost. While the IHT regime does attach a 'tail' once you leave the UK, this can be as little as three tax years if you have been UK resident for up to thirteen tax years. Depending on age and health, IHT exposure during this limited period may not be a significant issue in the broader context of life and can often be mitigated by suitable life insurance. Come for four years, stay longer – the UK regime appears more attractive than it initially seems.
