Foreign Income and Gains Regime: Everything you need to know

The somewhat controversial concept of ‘domicile’ to establish UK tax liability has now been abolished. Instead, the Labour government has introduced an alternative tax break, aimed at those who, are perhaps long-term British expats, interested in returning to the UK, or foreign nationals who are also interested in living here for a short time, and who might have previously benefitted from the ‘Non Dom’ tax reliefs associated with offshore sources. 

This new Foreign Income and Gains regime, ‘FIG’, is pretty simple, in that it offers complete UK tax exemption on overseas income and gains. It follows that this could provide very significant tax relief, which any new UK ‘arriver’, should take full advantage of, (that is, assuming they do indeed qualify).  As mentioned, the exemption principle is simple enough, however, the qualification criteria, period available, and reporting application may not be quite so straightforward. It’s therefore important to be cautious and double-check how this applies to bespoke circumstances.  

Who can qualify for the Foreign Income and Gains Regime?

FIG is only available to individuals who were previously non-UK tax residents for 10 consecutive tax years before they arrive in the UK, and as outlined above, the overseas sources exemption applies for a maximum of 4 tax years.   

The exemption only applies to overseas income and gains that also actually arise after 6 April 2025. 

For anyone who became newly tax resident before 6 April 2025, the 4-year ‘clock’ will start in the tax year they first became tax resident. It follows that to benefit at all from FIG, the earliest tax year you can become a UK tax resident is 2022/23. Essentially, then, 2022/23, 2023/24 and 2024/25 tax years will use up 3 of the 4 available years, leaving 2025/26 as the only year when FIG can actually be claimed. 

Who are the Biggest Winners?

Those who will benefit most from the FIG regime will be new arrivals to the UK after 5 April 2025. So long as they have the 10 consecutive years of non-residence behind them, these individuals should be able to benefit for the full 4 years-worth of FIG and pay no tax on their qualifying overseas income and gains.  

Which overseas income and gains will qualify for the FIG regime?

Qualifying overseas income includes:  

• Most types of foreign investment income, e.g. dividend/interest. 
• Foreign pension income 
• Foreign property income 
• Foreign social security benefits 
• Profits of a trade carried on wholly outside the UK 
• Royalties and other income from intellectual property 
• Sale of foreign assets 

Which sources will not qualify for FIG?

There are some excluded sources which are not eligible for a FIG claim, these include;  

• Chargeable event gains from Offshore Life Insurance Bonds,  
• Foreign earnings 
• Foreign-specific employment income.   

Overseas Employment Income is one of the trickier areas and is one where the concept of domicile will continue to play a part in the UK tax system. We discussed the changes previously when we deliver into the new residence regime replacing domicile. 

We would always recommend seeking professional advice in relation to specific income sources when considering if it is qualifying for FIG. 

Are there any tax drawbacks to consider?

When a FIG election is made, the individual will lose their entitlement to the UK tax-free personal allowance, currently £12,570 (2025/26) and their Capital Gains Tax annual exemption, currently £3,000 (2025/26).  

It is therefore important to consider these points and establish which method of calculation produces the most tax-efficient result.   

The claim for FIG is not automatic and must be made annually via the self-assessment tax return.  The claim for each tax year is an independent assessment and can be chosen based in the most tax-efficient manner.   

What will HMRC expect from a FIG claim?

Somewhat disappointingly, HMRC appear to be insisting that any future Tax Returns which make a claim for FIG relief to also include full details of the overseas income and gains relative to the exemption claim each tax year.  

Whilst this may not sound unreasonable, these individuals could have multiple, long-term overseas investments, some or all of which may not be neatly fit into the UK tax legislation in terms of readily applying the correct notional UK tax treatment. For example, a discretionary investment portfolio, managed for +20 years overseas, will potentially require analysis of every fund/bond/security, to then identify if subject to UK income tax or instead capital gains tax.

If the latter is the case, then multiple ‘share pool’ calculations, essentially collating every single acquisition and disposal for each individual security for those +20 years, will be needed. It will be necessary to identify every transaction from inception to date, converting at each point to GBP. Only then can any gain on sale be calculated according to UK tax rules. 

All these additional calculations will be required by HMRC, despite there being no actual UK tax due. 

Anything else to consider?

For those who have never had to file a UK tax return, they will have to register for self-assessment in order to be able to make the claim. If you have just become tax resident in the current tax year, 2025/26, you must first register with HMRC to file a UK Tax Return on or before 5 October 2026 (6 months after the tax year end). Thereafter, the 2026 UK Tax Return must be submitted to HMRC before 31 January 2027. 

Our Private Client International Tax team are perfectly placed to help with any questions or reporting relating to the new FIG regime. Please do not hesitate to get in touch with Carol Edwards, Annabel Jagger or your usual AAB contact if you would like to discuss how we can help.