Reforming the taxation of non-UK domiciled individuals – implications for internationally mobile employees  

From 6 April 2025, the remittance basis (and concept of domicile) is to be abolished and replaced by a new regime for foreign income and capital gains – the four year foreign income and gains (FIG) regime. As such, employers will need to consider the impact on their internationally mobile employee population, particularly those relocating to and working in the UK.

What are the current rules?

Under current rules, qualifying non-UK domiciled but UK resident individuals can make a claim to be taxed under the remittance basis of taxation. Essentially, this allows individuals to shield their overseas income/gains from UK tax for up to 15 years prior to becoming deemed domiciled, provided it is not remitted (brought into) the UK.

From an employment perspective, non-UK domiciled individuals performing duties in the UK and overseas can make a claim for overseas workday relief (OWR) for their first three years of UK tax residency. This shelters the overseas element of their employment income (that is, the proportion of their salary that relates to overseas workdays) from UK tax, provided the income is paid overseas and not remitted to the UK.

What is the foreign income and gains regime?

The FIG regime simplifies tax rules for individuals living and working in the UK short term as they will no longer be required to keep their foreign income and gains offshore. The concepts of domicile, bank account cleansing, mixed fund rules etc are to be abolished and all individuals will be taxed on the arising basis. The FIG regime grants 100% relief on all non-UK income and gains during the first four years of UK tax residence for individuals who have been non-resident for at least 10 years, provided a claim is made via a UK tax return. After this period, it will no longer be possible to claim tax relief under this regime and the individual will be subject to UK tax on their worldwide income and gains. This is a significant change from the existing rules. Individuals will lose their capital gains tax annual exemption and personal allowance if a FIG claim is made.

From an OWR perspective, when a UK resident employee qualifies for the FIG regime, they should also be eligible to claim OWR for a maximum of four consecutive tax years. As per the old rules, employees can shelter their overseas earned employment income from UK tax however they can now remit such income to the UK (or be paid directly into a UK bank account) without consequence. OWR must be claimed for the qualifying year on a UK tax return and the employee must quantify the amount of relief being claimed.

It is very important to highlight that there is now an annual financial limit to OWR, being the lower of:

• £300k or
• 30% of their qualifying employment income

Trailing income (such as bonuses) that is paid after 6 April 2025 but relates to an earnings period prior to this date, should still be taxable under the old rules therefore restrictions on remittances and qualifying bank accounts must still be considered.

There are transitional arrangements for individuals who claimed OWR prior to 5 April 2025 but don’t qualify for the FIG regime. Such individuals can claim OWR for their first three years of UK tax residence with no financial limits. Individuals that are part way through their three-year claim on 6 April 2025 but do qualify for the four-year FIG regime, will be able to benefit from OWR for a total of four years.

Actions for employers of internationally mobile employees

Employers of internationally mobile employees should prepare for the introduction for the new FIG. This may involve:

• Informing employees who may be impacted and offering support/professional advice as required
• Update payroll reporting processes with respect to the OWR financial limit
• Update internal global mobility policies and processes as appropriate.

Changes to treatment of flight costs for non-residents

There are also proposed changes to the taxation of flights (home leave) whereby the definition of a qualifying individual is altered from not domiciled in the UK to a new qualifying resident who meets the criteria for the FIG regime. This may impact non-residents visiting the UK for ad hoc work, such as non-resident directors of UK companies coming to the UK for board meetings etc. Their related flight costs could become taxable in the UK if found to be relating to duties performed at a UK permanent workplace.

If you have questions on any of the above please get in touch with our employer solutions team.