Reduced complexity

The non-domiciled basis of taxation was generally very complicated, requiring taxpayers to typically set up various offshore bank accounts if they wished to benefit fully from the regime.

By contrast with FIG, qualifying new arrivals to the UK, whether British or foreign domiciled, do not require any complicated bank account structures.

Instead, for qualifying individuals all foreign-sourced income and gains is automatically non-UK taxable for the four years of UK tax residence regardless of whether the income or gains are subsequently remitted to the UK or not.

However, while FIG is generally much simpler (and arguably fairer) than the historical non-dom regime, as with anything involving the UK tax system it does come with various issues and challenges, which advisers and clients need to be aware of. These include:

1 | Non-domiciled basis of taxation

As with the non-domiciled basis of taxation, someone who claims FIG relief loses their personal tax allowance and their entitlement to the annual capital gains tax exempt amount. Hence, for those taxpayers who have limited income or capital gains overseas, it may not be appropriate to claim FIG.

2 | Remittance basis of taxation

While the remittance basis of taxation allowed non-dom taxpayers with £2,000 or less of unremitted, overseas income to automatically benefit from the non-domiciled basis of taxation (without making a claim or losing their personal tax allowance), the FIG regime includes no equivalent easement. A specific claim is needed for FIG relief and this must be via an SA tax return.

3 | Taxpayers wishing to benefit from the FIG

Any taxpayers wishing to benefit from the FIG regime will need to file an annual tax return and specifically claim for the FIG exemption within that. Moreover, it is important that taxpayers realise that they only have approximately 22 months from the end of a tax year to file a valid FIG claim. For example, the deadline for claiming FIG relief for the 2025/26 UK tax year is 31 January 2028.

4 | Claiming FIG relief

When claiming FIG relief on a tax return, the taxpayer can claim FIG specifically for their investment income, capital gains or both. Indeed, it is possible to restrict the FIG claim to specific overseas income or capital gains streams (and hence be liable to tax in the UK on any foreign-sourced income or gains for which there is no FIG relief claim). While it might appear illogical from a UK perspective to claim FIG relief on certain overseas income sources (or capital gains) and not others, there may be valid reasons from a foreign tax return perspective that justify such positions.

5 | Fig relief

When claiming FIG relief, taxpayers and advisers need to realise that it is important that every effort is made to report the foreign income and gains as accurately as possible. This is because the legislation allows HMRC to reject FIG claims, where it subsequently transpires that the income (or gains) being reported on the tax return were incorrect. If a FIG claim is rejected as incorrect, the income or gains would then ‘fall back’ into the UK tax net and be innately liable to income tax or capital gains tax. From a practical perspective, this legal restriction may cause a number of problems for taxpayers and/or advisers including:

· The tradition of reporting certain foreign income (e.g. foreign letting income) in the UK on a ‘co-terminous’ basis (i.e. reporting the 2025 calendar year income and expenses as co-terminous with the 2025/26 UK tax year) would no longer appear to be appropriate; and

· Issues may arise vis-à-vis the 22-month FIG claim deadline as, in some situations, one may find that finalised foreign income and expense information – or the relevant foreign tax data, for example – is not available in the UK on a timely basis.

It is therefore quite possible that these issues may mean that additional work is required by advisers (and hence an increase in the fees charged to taxpayers).

6 | Fig regime

While the FIG regime retains the ability for qualifying taxpayers to benefit from overseas workdays relief (OSWD) for their non-UK workdays – allowing this for a period of four UK tax years (previously OSWD relief was only available for a period of three UK tax years) – and also eliminates the need for the income arising from April 2025 to be paid into a qualifying bank account, it does come with some new restrictions. In particular, advisers should note:

· OSWD relief is limited to a maximum amount of £300,000 per tax year (or 30% of the relevant income, whichever is lower); and

· The amount of OSWD relief is calculated on a tax year basis, which may cause some practical difficulties when assessing the amount of OSWD relief available for post-tax year earnings. For example, a share option gain which arises in 2028 could have been earned over, say, three or four different tax years and one would be needing to assess the amount of OSWD relief available against the relevant tax year limit (i.e. £300,000 or 30%) for each of these tax years.

In addition, where clients are benefiting from section 690 rulings for PAYE withholding purposes, these rulings will not innately take account of the £300,000 restriction for OSWD relief. As such, with higher earners it is quite possible that a section 690 PAYE ruling could result in a significant underpayment of PAYE. It will be important for advisers to ensure that their clients are aware of this risk from an overall client management perspective.