Non-dom tax changes - what is the four-year FIG regime?
What is the FIG Regime?
Under the FIG regime, qualifying individuals can elect for foreign income and gains to be exempt from UK tax, regardless of whether the income or gains are brought to the UK.
This regime will be available in the first four years of UK tax residence, provided the individual has been a non-UK resident for at least the previous ten years.
It appears that if you leave the UK temporarily during this 4-year period a claim can only be made for any of the qualifying tax years remaining on your return. For example, if you became a UK tax resident in Year 1 and were then a non-UK resident in Year 2 and Year 3, before returning to the UK in Year 4, you could make a claim under the FIG Regime in Year 1 and Year 4 only. Essentially, periods of non-residence in this 4-year window appear to count towards the 4-year qualification period for the FIG Regime. It is currently unknown if this will be adjusted when the legislation is published.
The FIG Regime is very generous for four years, after which residents will be taxed in the UK on their worldwide income and gains. Those who wish to benefit will need to make an election and so will need to be mindful of their UK tax return filing requirements.
The FIG Regime will also be available in the first four years of UK residence to individuals who plan to stay in the UK permanently from this date, unlike the criteria to be considered non-domiciled whereby non-domiciled individuals must have the intention to leave the UK again.
Our initial thoughts
We may see a rise in individuals using the UK as a temporary place of residence.
For example, the FIG Regime will be attractive for business owners looking to realise a gain on or extract dividends from their non-UK business which they will be able to do without incurring any UK tax. This could also apply to individuals holding any non-UK assets with large unrealised gains, or with profits to extract.
It may also be attractive for foreign professional athletes, or footballers, who tend to operate on shorter-term contracts and could spend 4 years working in the UK, living off their UK salaries only.
Consideration will need to be given to how the new rules work with existing double tax treaties. As the new FIG rules will not bring the income or gains into UK taxation, the taxing rights may fall back to the country from where the income or gains are derived. If the individual is already in a low-tax or no-tax jurisdiction this may not be as much of a concern.
Potential areas of planning
As with all tax planning, there is no one-size-fits-all answer, but we have set out below some areas that you may wish to consider:
- If you are planning to relocate to the UK and can be flexible in when this takes place, you may want to defer this until April 2025 in order to take full advantage of the new rules;
- In the tax year of your move, you may want to arrive in the UK as soon as possible after 6 April as you will need to be a UK tax resident to elect to be taxed under the FIG Regime. If you become a UK tax resident partway through the 2025/26 tax year, this may still count as 1 of the 4 years;
- If you have been living in the UK since 2022/23 and onwards, you may also be able to benefit from the FIG Regime until you reach 4 years of UK tax residence. Care should be taken to consider the segregation of income and gains that you may have claimed the remittance basis against to date;
- As noted above you may wish to consider keeping as much wealth as possible outside of the UK in the first 4 years of residence, to mitigate your UK tax liabilities during this time.
- If you are originally from the UK and have been outside of the UK for, say 10 years by next April 2025, you could move back to the UK and be able to benefit from the FIG Regime irrespective of whether you were born in the UK and lived here throughout your life up to your departure 10 years ago;
- We would suggest that you consider and, if required, take professional advice as to when your UK tax residence status may commence in order to benefit from these rules. Furthermore, under the UK Statutory Residence Test, you may find that even if you are spending time in the UK each year, you are not considered to be a UK tax resident in any case and therefore an election under the FIG Regime would not be required.
A final point to note is that we will have a General Election and potential change in Government ahead of April 2025, which could mean that changes are made before it is implemented, and we are currently awaiting draft legislation to be published.
Get in touch
As a fully integrated international firm, we work as a global team to advise individuals with multijurisdictional issues, ensuring their affairs are both structured in a tax-efficient manner and are compliant, wherever they are based.
If you are considering relocating to the UK and are looking for advice, please do not hesitate to get in touch.