This note is relevant for any UK employers who currently employ non-UK domiciled individuals.

The Autumn 2024 Budget confirmed the previously announced abolition of non-domiciled status for tax purposes from 6 April 2025, ending a long established and understood tax regime for individuals who come to the UK without the intention of settling here permanently. The Budget announcements, and confirmation of the new Foreign Income and Gains (FIG) regime, will give currently non-UK domiciled individuals living in the UK much to consider as it will affect their income tax, capital gains tax and inheritance tax position. As with any change to taxation which affects individuals, employers also need to understand the implications affecting their internationally mobile population and potentially others within their wider workforce.

How will the abolition of non-UK domiciled status impact employers?

The simplification of rules concerning what is UK taxable employment income (and what is foreign income) makes the UK attractive for assignments or local hire employments of up to four years.

It will also become easier for employers to support their employees with FIG regime tax relief via payroll as the process for implementing PAYE in such cases has been streamlined.

Employees from overseas planning to be in the UK for longer periods, or who are already UK tax resident but not considered to be UK-domiciled under the current legislation (and therefore are benefitting from the remittance basis tax regime), may be put off coming to the UK (particularly if this is a return visit), or wish to repatriate to their home country earlier than intended.

To the extent employers have tax equalised their globally mobile population, any increases in UK tax costs in consequence of the new FIG regime are likely to increase the cost to the employer, depending on the arrangements.

Working remotely from the individual’s home country so as not to be caught by the new FIG regime may also become more attractive. This could also have host country tax and permanent establishment implications which will need to be considered ahead of agreeing any offshore remote working arrangements.

Policies may need to be reconsidered where inbound employees are tax equalised on personal income and gains as UK tax will now be due on worldwide income at an earlier stage of an assignment. Remote worker policies should also be reviewed to ensure these are able to address a potential increase in requests for UK employees to be based and work outside of the UK.do to prepare for the FIG regime?

As a first practical step, employers should identify which employees are affected by the new FIG regime, including those who are known to be globally mobile (for example, those on secondment), as well as locally hired employees.

Employers should work to understand the impact on those affected by the change, the commercial implications for the business, determine how this might be addressed and then work with internal and/or external stakeholders to implement any changes needed. Employers should ensure that their internal policies (such as global mobility, tax equalisation and remote worker policies) are updated and communicated internally ahead of the new rules coming into effect.

What should employers do to prepare for the FIG Regime ? 

As a first practical step, employers should identify which employees are affected by the new FIG regime, including those who are known to be globally mobile (for example, those on secondment), as well as locally hired employees.

Employers should work to understand the impact on those affected by the change, the commercial implications for the business, determine how this might be addressed and then work with internal and/or external stakeholders to implement any changes needed.

Employers should ensure that their internal policies (such as global mobility, tax equalisation and remote worker policies) should be updated and communicated internally ahead of the new rules coming into effect.

Overview of the new FIG regime

The FIG regime that will apply from 6 April 2025 should bring welcome simplification for employers where employees come to the UK to live and work in the short term and do not need to return to the UK for anything other than ad hoc business trips or holidays in the future. The UK may become less attractive to employees from outside the UK who need to be in the UK for substantial amounts of time for the medium to long term. It may also present additional costs and considerations to businesses where employees are either tax equalised (where the employer is paying the UK taxes of an assignee working in the UK) or wish to move overseas and work remotely from another jurisdiction.

• Under the FIG regime, there is no longer a tax disadvantage to bringing overseas income to the UK in the first four years of UK tax residence.
• Overseas Workday Relief (OWR) is also more attractive and easier to claim by employees, as the requirement to keep their income not subject to UK tax permanently outside the UK has been removed, but relief will be limited to an annual cap. The process enabling employers to reduce corresponding payroll tax withholding has also been simplified.
• After four years however, short term UK residents will automatically be taxable on worldwide income.
• Individuals need to be outside the UK for 10 years in order to ‘reset’ the tax rules and be treated as a new arrival to the UK under the FIG rules.
• There will also be changes to the way inheritance tax (IHT) is levied and transitional rules may apply to some employees already living in the UK.

Ahead of the new rules coming into force from 6 April 2025, now is the time for employers to understand the new regime, including transitional provisions, and review your expatriate policies and procedures particularly where you are tax equalising or tax protecting employees who come to work in the UK. It will also be important to understand whether any key employees hired locally from within the UK may be affected by the change in tax regime and who may now wish to move outside of the UK and in particular how this might be achieved to retain their expertise and how this interacts with any existing international remote working policy.

Current tax rules affecting employees in the UK

The UK tax rules for non-domiciled individuals have always been complex as there is not a legislative definition of ‘domicile’ so the reliance has been on case law. The status hinges on long term intentions starting with, for most people, where a person’s father is domiciled.

An individual coming to the UK who is not UK domiciled can claim the remittance basis each tax year with the following impact:

• For the first three years, new arrivals to the UK can exclude income relating to overseas workdays from UK tax, so long as the income is paid and retained outside the UK (Overseas Workday Relief or ‘OWR’), requiring separate bank accounts to be established.
• Foreign income and gains will not be taxable in the UK so long as these funds are not brought to the UK.

Where an individual has less than £2,000 of annual foreign income / gains, the remittance basis applies automatically with no loss of tax-free allowances. Otherwise, there is a tax cost which is the removal of the UK tax free personal allowance (assuming the individual would otherwise be entitled to it) and removal of the capital gains tax annual exemption, in each year the remittance basis is claimed.

After seven years of UK residence, a £30,000 annual remittance basis charge is payable (£60,000 after 12 years) to continue using the remittance basis. Once someone has been UK tax resident for 15 out of 20 years, they are regarded as ‘deemed domicile’ and the remittance basis no longer applies; they will also be ‘deemed domiciled’ for Inheritance Tax (IHT) purposes.

Travel to and from the UK (including visa fees) for non-domiciled employees can also be exempt from UK income tax if certain conditions are met.

New rules from 6 April 2025 

The concept of domicile and non-domicile status will no longer be relevant for UK taxation, and with this change comes the removal of the remittance basis of taxation and any associated UK tax advantage.

From 6 April 2025, the new FIG regime will be available to any individual for the first four tax years after becoming UK tax resident (FIG relief), provided there has been a period of 10 consecutive years of non-UK tax residence (Qualifying New Residents). Where a claim for FIG relief is made, eligible individuals will not pay UK tax on foreign income and gains arising in the first four years of UK tax residence and will be able to bring (remit) these funds to the UK free from any additional charges.

FIG relief will need to be claimed in each eligible tax year that the taxpayer would like the regime to apply. If FIG relief is claimed, there will be no entitlement to the tax-free personal allowance and capital gains tax annual exemption in that tax year.

Where a claim is not made in a particular tax year, taxation of income and gains will be on an arising basis (worldwide income).

OWR will now be available to employees in the first four tax years of UK residence, provided they elect to use the FIG regime. A welcome simplification is that there is no longer a requirement to structure overseas bank accounts prior to claiming the relief for the first time, or to keep this income permanently outside the UK, and employers no longer need prior approval from HMRC before they reduce PAYE tax withholding in line with the expected OWR available. OWR relief has been extended to four years but there is now an annual cap on the claim to the lower of 30% of employment income or £300k.

The wording of the employment tax exemptions for travel to the UK for non-domiciled individuals has been updated to confirm exemption applies to non-UK residents and Qualifying New Residents and the specific tests in relation to the ‘qualifying arrival date’ that needed to be met have been removed.

Transitional rules (2025/26 - 2027/28 Tax years)

As with any significant change in regime, HMRC have set out transitional rules that will apply to non-UK domiciled individuals who are currently claiming the remittance basis:

• Capital assets can be rebased to 6 April 2017 values which will allow for an uplift in base cost when calculating the gain on the sale of capital assets. This type of transaction is caught by the current remittance basis rules so the transitional rules may be beneficial where individuals have previously claimed the remittance basis and plan to remit overseas capital gains ahead of the new FIG regime.
• Remittances of income and gains covered by remittance basis claims in previous tax years can be remitted to the UK with a flat tax charge of 12 percent in 2025/26 and 2026/27). The flat tax charge for 2027/28 will be 15%. Under current rules, the tax rate will usually be the marginal rate of tax for the taxpayer (so could be up to 45 percent).

How can A&M help?

We have an experienced team of employment tax specialists who can assist with:

• Assessing and advising on the impact on current employee populations
• Reviewing and updating expatriate policies
• Staff presentations
• Employee tax briefings
• Estimated cost calculations

Please contact David O'Malley, Monica Houston or Nisus Larsen, or a member of the A&M UK Tax team for further information.