Out with the old, in with the new: transitioning to the new Foreign Income and Gains rules

The recent abolition of the 200-year-old non-dom regime introduced a more modern set of rules, based on residence rather than domicile. In this blog we would like to focus on the transitional considerations for those who have been in the UK for less than four years and so may be moving from one set of rules to the other.

The current tax year (2025/26) is the first in which the new Foreign Income and Gains (FIG) rules apply, but they are applicable for everyone, even those who arrived beforehand. Therefore, there will be many individuals who find themselves split between the new and the old.

Please visit the International section of our website for notes and guides relating to the new Foreign Income and Gain (FIG) regime, the Temporary Repatriation Facility and rebasing options (for previous non-doms).

What’s changing?

The rules implemented for those individuals (and their trusts) who have been in the UK for under four years can be summarised as follows:

1. Initial period of arrival

Individuals who have been UK resident for under four years (including those returning after 10 years or more abroad) will be allowed to use the new FIG regime for the remainder of their four-year period, starting from when they became UK residents. This means that foreign income and gains can be excluded from UK taxation. But, unlike under the previous remittance basis rules, these proceeds can also be used and spent in the UK.

Any income or gains accrued under the previous remittance basis rules before 2025/26 will still be treated under those rules, So, if they have not been subject to UK tax under those rules, they would be taxable on remittance to the UK.

*If you would like to know more about this, please see our separate blog or contact us.

Any break away from the UK within the four-year period does not pause the window or change your starting date, meaning it will still count towards the initial four-year period under the FIG rules.

2. Trust protections

Existing Excluded Property Trusts (EPTs) will be grandfathered and keep the protected status, provided they were set up by 30 October 2024 and fully funded by 6 April 2025. This means that, if assets are added into the EPT after that date, they may not be excluded from UK Inheritance Tax. Trusts set up after that date will be subject to the new residence base taxation rules.

In other words, once the settlor becomes long-term resident (being resident in the UK for more than 10 out of the last 20 years), the trust may lose its excluded property status and be brought into the scope of UK inheritance tax. There are many considerations attached to this, such as periodic and exit charges that should be considered; anyone with a trust who might be impacted is highly encouraged to seek financial advice.

3. Overseas Workday Relief (OWR)

This arrangement has been kept within the new rules, with the duration aligned to the new FIG regime and partially simplified. In short, if you are a qualifying employee, you can reduce the amount of your income that is taxable in the UK by deducting pro-rata the number of days spent working abroad.

This allowance is now available for the four years (aligned with FIG) instead of the three years previously. In another extremely valuable change, it is no longer necessary to have at least a portion of your salary paid offshore to benefit from this reduction. This was historically difficult for employers who used payroll systems limited to sort code and account numbers rather than international formats.

To benefit from this allowance, suitable declarations and strict record keeping of travels remain an absolute must. For more information on this, please contact us or speak with your tax adviser.

A complex, changing landscape

As individuals grapple with the impact of the new rules, it is important to consider the legacy of the old regime and how that may impact them. For previous non-domiciles and those who will become long-term UK residents, reassessing tax planning or structuring is essential, as past benefit or protections may no longer apply or will be lost over time.

If you have existing arrangements that need reviewing or would like to discuss how best to structure your affair going forwards, it is important to do so with both the past and future in mind. Our International team will be pleased to have a conversation and discuss how we might be able to assist you.

 

 

 

The information and/or any reference to specific instruments contained in this article does not constitute an investment recommendation or tax advice. The contents of the article have been prepared solely for information purposes. The article contains information on financial products and services and such information is designed for and addressed solely to individuals seeking generic industry information. This document reflects our understanding of current legislation. Past performance is no guide to future returns.