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From 6 April 2025, the tax advantaged non UK domiciled regime is abolished. This has clear implications for individuals who were previously eligible for the original scheme, but it also has implications for employers who recruit from a global talent pool. This is because the new regime may influence whether an employee either accepts a new UK role or continues with an existing assignment based in the UK.
Historically, people who were resident in the UK but who were non-UK domiciled, were able to avoid paying tax in the UK on their overseas income and gains provided those income and gains were never brought into the UK.
From 6 April 2025, all UK resident individuals must pay UK tax on worldwide income and gains: the concept of domicile no longer exists. In order to avoid double taxation, double tax relief is largely available where tax has been paid in another country.
Added to this, once an individual has been a UK tax resident for 10 or more of the previous 20 tax years, they are also liable to pay inheritance tax in the UK on their worldwide assets.
FIG regime to replace non-dom regime
If an individual has recently arrived in the UK, they can elect for foreign income and gains to be exempt from UK tax. This simplifies the rules for individuals living and working in the UK short term. Those who have not been UK resident for any of the previous ten consecutive tax years can benefit from a full exemption on their foreign income and gains for the first four years after they become UK resident.
Note however this treatment is subject to an election and reporting requirements relating to overseas income.
Individuals who qualify for the FIG regime may also be able to claim relief from UK tax on their employment income from overseas workdays for the first four tax years from becoming UK tax resident. There is a limit to the amount of tax relief available, which is capped at either the lower value of 30% of qualifying employment income or up to £300,000 per tax year.
If an employee is already a tax resident in the UK they can still qualify for the FIG regime provided they a) have not been residing in the UK for more than four years and, b) were not a UK tax resident during any of the 10 tax years prior to arrival.
The FIG regime also maintains the current availability of tax relief on expenses incurred by non-UK domiciled employees who are travelling between their home country and the UK for the first five years after their date of arrival. In keeping with the tax free status, the level of time will reduce to four years and the individual should not have been a UK tax resident in the 10 years prior to arrival.
How does the FIG regime impact employers?
The abolition of the non-dom rules will be a key consideration for individuals deciding whether to come to the UK for a work assignment or to remain on an existing overseas assignment.
If the employee will qualify for the new regime and their assignment will last less than four UK tax years, their tax treatment will be on a par with the old non dom scheme.
If the employee does not qualify for the FIG regime and will become taxable in the UK on their worldwide income and gains as a result of an existing or new assignment, the tax implications may be prohibitive and alternative arrangements may be needed.
It may be possible to ‘tax-protect’ or ‘equalise’ existing employees that are affected by the rule changes and this will need careful consideration with a tax adviser.
