The new Foreign Income and Gains regime

The non-UK domiciled individuals (non-dom) regime has been part of the UK’s tax system for over 200 years. Where certain conditions are met, it has enabled UK resident individuals whose long-term home is outside the UK to benefit from the remittance basis of taxation, effectively exempting their foreign income and gains from UK taxation, provided these are not remitted to the UK. This has also provided an approach through which employers have been able to lower costs of tax equalised employees in the UK through tax planning.

The UK Government plans to replace these non-dom rules with a new four-year Foreign Income and Gains (FIG) regime from 6 April 2025. The new regime means that for individuals becoming tax resident in the UK, provided that they have not been UK resident in any of the previous 10 years, overseas income and capital gains received in their first four tax years of residence will not be taxable in the UK. The new regime is intended to be simpler in its operation and will allow individuals to freely remit their overseas monies into the UK, putting an end to the remittance basis concept. These changes will have a significant impact on both employers and their employees, particularly those who are non-domiciled and are already residing in the UK.

While the full details of the FIG regime will not be confirmed until 30 October 2024, both employers and employees can take steps now to prepare for these changes. We have listed below the key considerations and suggested actions.

Key Considerations

For Employers

Tax and Compensation 

• Potential increase in employment costs due to potentially higher tax liabilities for non-domiciled employees. 
• Tax Equalisation policies and Net Salary Agreements may need to be revised to ensure continued fairness.

Recruitment and Retention 

• The new regime could impact the attractiveness of the UK for international talent, requiring employers to educate potential recruits on the applicable regime going forward. 
• New transition and retention strategies may need to be implemented to help retain existing employees who might be adversely affected by the changes.

For Employees

Tax Implications 

• Non-domiciled employees might face higher tax liabilities, particularly on worldwide income and gains. For instance, employees arriving in the UK from 6 April 2025 who haven’t been resident outside the UK for at least ten UK tax years will not be eligible for relief on their overseas workday employment income. Currently, this relief is available to non-domiciled individuals who have been non-resident in the three UK tax years prior to arriving in the UK. Understanding how dual taxation relief and agreements with the UK might mitigate this increased tax burden will be crucial.

Suggested Actions

For Employers 

• Work with tax professionals to assess the impact of the new regime on costs and complexity for talent. Consider education for HR and payroll teams who are likely to be faced with questions and actions. 
• Reassess compensation and benefits packages to mitigate the impact of the new tax regime on affected employees. 
• Communicate clearly with non-domiciled employees about the changes and their implications. 
• For tax equalised employees consider the tax policy changes and/or clarifications required.

Summary

The new FIG regime from April 6, 2025, brings both challenges and opportunities for employers and employees. Early planning and action will be key to ensuring no surprises in the upcoming tax year and beyond.

If you have any concerns with regard to the new FIG regime, please contact Kenny Law or your usual Crowe contact.