Foreign income and gains
Written by Ray Coman
A switch from remittance basis to foreign income and gains regime was announced in the 2024 Spring Budget by the former Conservative government. The incoming government confirmed their intention to implement the new system with effect from 2025/26 with some minor changes. From 6 April 2025, the remittance basis of taxation will be replaced by the foreign income and gains regime.
Foreign income and gains eligibility
Temporary Repatriation Facility (TRF)
Foreign income and gains eligibility
Starting 6 April 2025, individuals will need to be non-UK resident for at least ten years prior to arrival in the UK to claim exemption from foreign income and gains. It will be necessary to make a claim to exempt foreign income and gains made in the first four years of UK residency. However, the income and gains will not be taxed on being remitted to the UK.
An individual who is already UK resident on 6 April 2025, but for less than four tax years, will be able to make a claim for however many years are left before that person has been UK resident for four tax years.
Overseas workdays relief
Overseas workday relief will continue to be available. However, it will no longer be necessary to retain earnings outside of the UK. An individual eligible for OWR will be able to remit funds to the UK from 2025/26 without forfeiting the tax relief. As with the existing OWR, relief will not be provided for employers’ or employee’s national insurance. Further information can be reviewed in the report on overseas workday relief.
Transitional rules scrapped
A transitional rule was announced in the Spring Budget. The then Conservative government tabled a 50% reduction in foreign taxable income for individuals who previously claimed the remittance basis. This transitional arrangement was to apply to the 2025/26 tax year only. However, the current Labour government do not intend to move forward with that transitional arrangement.
Temporary Repatriation Facility (TRF)
Remittances will be taxed at a lower rate of 12% UK tax for income and gains which have previously escaped UK tax because the remittance basis was claimed. This supersedes the usual rule that a remittance of previously unremitted income is taxed at the marginal rate of tax. The TRF therefore presents an opportunity for non-domiciled individuals seeking to repatriate funds. The lower rate will discontinue from 2026/27.
Rebasing of capital gains
From 2025/26, a person who was previously a remittance basis user will be able to rebase the value of an asset to its 6 April 2019 value in determining liability to UK capital gains tax. The base cost for UK capital gains tax purposes for assets held on or before 5 April 2019 can be the same as the market value of the asset in April 2019.
Drawback of FIG
Opting to use the Foreign Income and Gains (FIG) regime will result in loss of personal allowance for income tax and annual exemption for capital gains tax purposes. This is the same forfeiture as currently applies to remittance basis users.
Conclusion
It will no longer be possible to claim the remittance basis from 6 April 2025. However, the remittance basis can continue to be used in 2024/25. There are risks and opportunities for non-domiciled individuals. An opportunity arises for non-doms to enjoy a lower rate of tax on previously unremitted income and gains. That window enjoy a lower rate of tax will start from 5 April 2025 and stay in place for two years.
Due to sacrifice of allowances, it is not automatically beneficial to exclude foreign income and gains for those entitled to participate in the regime. A comparison of scenarios would determine optimal tax potion.
