The United Kingdom are changing how it taxes non-UK domiciled individuals with new guidance issued by HM Revenue and Customs (HMRC).
Out with the old, in with the new
From 6th April 2025, rules for the taxation of non-UK domiciled individuals will end for all new foreign income and gains (FIG).
These will be replaced with:
- an internationally competitive, residence-based regime providing 100% relief on eligible FIG for qualifying new arrivals to the UK in their first four years of tax residence
- a new Temporary Repatriation Facility (TRF) will be available allowing individuals previously taxed on the remittance basis to designate amounts derived from pre-6th April 2025 FIG and pay a reduced tax rate on these amounts for a period of three tax years, starting from 2025 to 2026
- Overseas Workday Relief (OWR) will be retained as part of the new residence-based regime and, subject to transitional provisions, will be available to those employees who are eligible for the new 4-year FIG regime
- the domicile-based system for Inheritance Tax (IHT) will be replaced with a residence-based system
HM Revenue and Customs will publish the full guidance on in April 2025.
4-year foreign income and gains (FIG) regime
Individuals who are qualifying new residents in the UK will get 100% tax relief on eligible FIG during their first 4 years of being a resident in the UK. This is known as the ‘4-year FIG regime’.
This regime will only apply to individuals who haven’t been UK tax resident in the 10 tax years immediately before their arrival.
Temporary Repatriation Facility (TRF)
Individuals who have been taxed on the remittance basis can choose to pay tax on previously untaxed and unremitted FIG that arose before 6th April 2025.
The tax rate will be 12% for the first 2 years and 15% for the third year. The TRF will be available provided the individual is UK resident in the relevant tax years.
Replacing the domicile-based system for Inheritance Tax (IHT) with a residence-based system
The new system will affect the scope of property brought into the UK IHT for individuals and settlements. The test for whether non-UK assets are in scope for IHT is whether an individual has been resident in the UK for at least 10 out of the last 20 tax years immediately preceding the tax year in which the chargeable event (including death) arises.
The new Overseas Workday Relief (OWR) regime
Employees will continue to be able to claim relief on their foreign employment during tax years in which they are eligible for OWR.
OWR will now be available for foreign employment income earned in the first four tax years of UK tax-residence.
Employees can claim relief under the new OWR regime regardless of whether their foreign employment income is received in the UK or overseas.
Employees will also be able to remit income which has been subject to this relief into the UK if it was received overseas without further charges.
The new regime will include a limit for how much OWR an employee can claim for each qualifying year.
This annual limit will be the lower of:
- £300,000
- 30% of their qualifying employment income.
For those who have already started an OWR claim before 6th April 2025, HMRC will apply transitional arrangements, which will be covered in their guidance.
Employees and migrant workers will continue to be eligible for deductions on expenses incurred when travelling to perform duties in the UK.
To be eligible a worker will need to be non-resident (by virtue of the Statutory Residence Test). Qualifying new residents will be eligible for deductions up to four years.
Non-resident individuals will continue to be eligible for deductions for 5 years from their qualifying arrival date.
Under the new residence-based regime, relief will no longer be available on chargeable overseas earnings earned after 5th April 2025.
Chargeable overseas earnings are earnings from an employment with a foreign employer, the duties of which are performed wholly outside the UK.
S690 Notification to operate PAYE on only a proportion of a Globally Mobile Employee’s income
From 6th April 2025, section 690 Income Tax (Earnings and Pensions) Act 2003 is changing and the current process of applying for an HMRC direction to operate PAYE on a reduced amount of earnings cease.
This new process allows employers and their agents to send HMRC a notification specifying a proportion of income paid to a globally mobile or treaty non-resident employee which will be treated as not being PAYE income within payroll.
Employers and agents can notify HMRC using a new online notification form, available from 6th April 2025, and allowing them to operate PAYE on the reduced amount of income as soon as HMRC acknowledge receipt of the notification which should be immediate.
Any HMRC directions that were issued before 6th April 2025 cease to have effect.
This means that if employers wish to operate PAYE on a reduced amount of an eligible employee’s income for the 2025 to 2026 tax year, they will need to submit a new notification.
PAYadvice.UK 21/3/2025