The new Foreign Income and Gains regime – how is it different from the old concept of domicile?

The concept of domicile for most tax purposes was abolished in April 2025 and replaced by the Foreign Income and Gains (FIG) regime.

How does it work?

If you’re eligible under the FIG regime, you’ll be able to claim tax relief against your net income equal to your qualifying foreign income.  You must claim the relief in your Self Assessment tax return within HMRC time limits. 

Qualifying foreign income includes interest earned from offshore bank accounts, dividends from non-UK companies, foreign trade profits and rental income from overseas properties.

Can I make a claim for relief under the FIG regime?

You will be eligible as a qualifying new resident under the FIG regime if you are UK resident in a tax year and have been non-UK resident in the previous ten tax years.

You can claim as a qualifying new resident for the first four tax years of UK residency, from 2025-26.

There are also transitional arrangements which may cover you if you arrived and became resident in the UK for tax purposes before this year.  If you became UK tax resident in the 2022-23 to 2024-25 tax years after a period of at least 10 years of non-UK residence, you are eligible to claim under the FIG regime for 2025-26, and for subsequent years to cover a maximum of your first 4 years of UK tax residence.

Performance income

Performance income is any income subject to UK income tax that is directly or indirectly earned from performing specific activities (whether in the UK or abroad) (ITTOIA 2005, s 845J). The relevant performance activities are entertainment, sport, participation in sound or video recording and commercial occasion or event performance activities, including the appearance of the performer in connection with the occasion or event.

A ‘performer’ is any individual who gives a performance of entertainment or sport of a physical kind that is or may be made available to the public or any section of the public, whether for payment or not.

Commercial occasions or events refer to the description where an individual earns or becomes entitled to receive cash or any other form of property as a result of a performance (anything done by the performer) or an activity designed to promote commercial sales by advertising, endorsements, sponsorships or other promotional means.

Effect of claims on reliefs and allowances

If an individual makes a foreign income claim as above, a foreign employment election or a foreign gain claim, this may result in a loss of tax reliefs or allowances as follows.

 •     Overseas business losses. A loss arising to an individual who runs a business entirely outside the UK (such as a trade, profession or overseas property business) will not be eligible for loss relief for that or any other tax year.

 •     Dwelling-related loans. Relief will not be given for the year for interest costs on a loan linked to an overseas rental property.

 •     Personal allowances. The claimant is not entitled to:

 •     personal allowance;

 •     blind person’s allowance;

 •     married couple’s allowance, which provides a tax reduction for married or civil partners who were born before 6 April 1935 and the associated transferable tax allowance; and

 •     any relief for payments for life insurance, etc, to trade unions or to police organisations under ITA 2007, s 457 or s 458.

 •     Registered pension schemes. If an individual makes a foreign income claim for the tax year (under the new FIG rules), in which they are entitled to pension contribution tax relief under FA 2004, s 188, and the pension relief exceeds the basic amount (currently £3,600 gross), the maximum pension tax relief will be reduced to the lesser of:

 •     the amount of foreign income relief the individual received under the FIG regime (specifically the part based on qualifying foreign earnings); and

 •     the amount needed to bring that individual’s relief down to the basic amount. This avoids enhanced tax relief being given based on foreign income that has already received favourable tax treatment.

Note that foreign income relief is ignored for the purposes of determining adjusted net income under ITA 2007, s 58. The adjusted net income is determined as if allowed foreign tax relief had not been deducted in calculating an individual’s net adjusted income for that tax year.

Foreign employment elections

From the tax year 2025-26, individuals who become UK tax residents for the first time or who return after a long period of non-residence may be eligible to claim foreign employment relief (FER). This relief replaces overseas workday relief and applies to income earned from foreign employment duties and is available through making a foreign employment election (FEE). The election allows the individual to exclude specific types of foreign-earned income from UK tax, subject to strict criteria on eligibility, timing and how the income gets calculated and reported.

A qualifying new UK tax resident, as defined in ITTOIA 2005, s 845B, may elect to treat employment income from the year they became resident as qualifying for relief. This election must be submitted through the individual’s self-assessment return. The deadline to submit this election is within 12 months following 31 January after the end of the qualifying tax year.

Once the foreign employment election is made, the individual may claim relief either in the same qualifying year or in a later year (if the income still relates to that qualifying year). The relief is granted on net taxable foreign employment income, which must be clearly identified in the claim and is calculated in accordance with ITEPA 2003, s 9.

The legislation provides a detailed method for calculating how much of the foreign employment income qualifies for relief. The approach involves allocating income between UK and non-UK duties using a just and reasonable basis. Only the portion of income arising from duties performed outside the UK is eligible (ITEPA 2003, Pt 2). Allowable deductions under ITEPA 2003, s 327(3) to (5) must also be proportionately applied. For example, if 70% of a share award is linked to foreign duties, then 70% of that income may be claimed as relief.

The claim is also subject to the monetary cap detailed in ITEPA 2003, s 41R. The cap is the lower of £300,000 or 30% of relevant qualifying employment income. Where the relief is claimed across multiple years, the cap in subsequent years is reduced by the amounts previously claimed.

Foreign gains

An individual may make a claim for relief for a tax year under TCGA 1992, Sch D1 para 1 if the individual is a qualifying new resident for that tax year. The definition of a qualifying new resident follows that of the foreign income definition, above.

A foreign gain claim must be made in their self-assessment tax return within 12 months of 31 January following the end of the relevant tax year in which the gain arose.

A foreign gain claim can be made in respect of the disposal of a foreign asset. Note that for the purposes of the foreign gain legislation, a ‘qualifying foreign asset’ means an asset:

 •     that is situated outside the UK; and

 •     the value of which must not be 75% or more derived from UK land. A ‘qualifying foreign gain’ is defined as:

 •     a chargeable gain accruing on the disposal of a qualifying foreign asset;

 •     a chargeable gain treated as accruing as a result of gains of a non-UK resident close company’s capital gains being attributed to a resident taxpayer; or

 •     a QAHC within the meaning of FA 2022, Sch 2.

To determine whether an asset is a foreign asset, the situs of assets is governed by special statutory rules (TCGA 1992, s 275 to s 275C). For the most part these rules are as one would expect, but three points should be noted. First, shares or debentures of UK registered companies are ipso facto UK situs. Second, registered debentures of a foreign company are situated where the register is kept. Third, all other debt apart from bank accounts and government debt is situated where the creditor is resident. The latter is a reversal of the common law and raises an interesting question as to the capital gains tax situs of immobilised corporate securities held by UK residents. Unless these can be said to be registered debentures, the capital gains tax situs of such securities is in the UK. Finally, note that foreign bank accounts are capital gains tax assets.

A foreign gain claim can also be made for deemed capital gains arising within non-resident settlements under TCGA 1992, s 86 and s 87.

Tax planning opportunities using the FIG

FIG is a fantastic tax planning opportunity for qualifying new residents to realise foreign income and gains during the first four years of their UK tax residency and to subsequently remit the proceeds to the UK. This will be the case if the individual can ensure that they cease to be tax resident in their previous country of residency, and receives their income and/or capital gains during the FIG period. Of course, tax advice should be obtained in all other relevant jurisdictions before embarking on such a plan. However, this approach could result in substantial overall tax savings.

Note that a returning UK expat that has been non-resident for ten years or more will also qualify for the FIG regime. This can be of significant benefit to UK expats returning to the UK. Care should be taken to consider the impact of the new long-term resident rules for UK IHT purposes as well when planning such a move.

Conclusion

The new regime for foreign income and gains is a fundamental change to the old rules based on domicile and remittance basis of taxation. While some former remittance basis users have clearly been disadvantaged by the change, qualifying new residents are actually in a better position than under the remittance basis of taxation. Private client tax specialists will need to ensure that they are familiar with the new regime. It is certainly not something about which one might say they don’t give a fig.

For more information, please contact Bethan Chant at bethan.chant@theburnsidepartnership.com.