COMPLIANCE
Individuals who move from the remittance basis to the arising basis (taxed on worldwide income and gains) on 6 April 2025 and aren’t eligible for the new four-year FIG regime will, for 2025/26 only, pay tax on only 50% of their foreign income arising in 2025/26. This reduction doesn’t apply to foreign chargeable gains. For 2026/27 onwards, tax will be due on all their worldwide income in the normal way. From 6 April 2025, individuals who have been taxed on the remittance basis in prior tax years will be able to elect to pay tax at a reduced rate of 12% on remittances of pre-6 April 2025 foreign income and gains under a new temporary repatriation facility, which will be available for tax years 2025/26 and 2026/27. Further guidance will be issued regarding relaxation of the mixed fund ordering rules to make it easier to remit funds to the UK under this transitional relief. What does this mean for IMEs arriving in the UK after 6 April 2025? Eligible IMEs won’t pay tax on foreign income and gains in the first four tax years after becoming UK residents if they make a claim for the FIG regime. They will be able to remit these funds to the UK without any tax charges. They will pay tax on UK income and gains. OWR is being retained for the first three tax years of UK residence as before, but with simplifications. IMEs will no longer have to keep funds relating to foreign income and gains offshore. Therefore, the new OWR will provide relief from income tax whether or not these earnings are brought to the UK. What happens if IMEs leave the UK and return later? If an individual leaves the UK temporarily during the four-year period, they will be able to make a claim under the four-year FIG regime for any of the qualifying tax years remaining on their return to the UK. However, this won’t apply to anyone who was resident in the 2023/24 UK tax year, who returns to establish UK tax residency from 6 April 2025 or later, unless they have been non-resident in the UK for ten UK tax years before they return to the UK. Are there any downsides for IMEs of opting into the FIG regime? Individuals who opt for the FIG regime will lose their annual exemption for capital gains tax purposes (currently £6,000) and their
personal allowance (PA), which is currently £12,570. This is also the case under the current remittance basis rules, and IMEs earning more than £100,000 are already subject to the gradual reduction of the PA to nil, once their earnings reach £125,140. IMEs arriving in the UK from 6 April 2025, who haven’t been resident outside the UK for at least ten UK tax years, will no longer be eligible for OWR, nor the wider benefits of the FIG regime. Currently, OWR is only restricted to non-doms who have been non- resident in the three UK tax years prior to arriving in the UK. What are the implications for income / gains other than from employment? The FIG regime applies to all foreign sources of income and gains. For those individuals who are neither UK domiciled, nor UK deemed domiciled by 5 April 2025, who’ve previously claimed the remittance basis, foreign assets (including shares in their overseas employers) will require an election to be rebased to their value as at 5 April 2019, and other currently unstipulated conditions to be met. There will be a consultation on how individuals become liable to inheritance tax, given this was previously based on an individual’s domicile status. Going forward, it will become based on the length of UK tax residency. What does the FIG regime mean for employers of IMEs? We envisage no significant adverse impacts on employers of IMEs. We expect HM Revenue and Customs (HMRC) to allow applications for Section 690 directions (or a new equivalent), so that employers can operate pay as you earn on a reduced percentage of earnings for IMEs eligible for OWR. Due to the three-tax-year availability of OWR, we expect no increased UK tax burden for employers of tax equalised or partially tax protected IMEs. The employer tax burden may, in fact, decrease due to the removal of the restriction on bringing foreign earnings to the UK. Employers should revisit their global mobility tax policy consideration in view of the potential attractiveness to IMEs of remitting previously unremitted (and untaxed) earnings because of the reduced 12% tax rate. The timing of this will be particularly relevant to US taxable IMEs due
to the way foreign tax credit is claimed for US tax purposes. There’s no change to the National Insurance contributions (NICs) position on earnings relating to overseas workdays. The earnings relating to both UK and non-UK workdays are still liable to NICs. We await clarification on how other expatriate tax reliefs available to non- doms, such as via the foreign travel rules (relocation travel, VISA application, home leave and travel between overseas and a UK workplace) will be impacted. Previously they were available to non-doms for up to five years, and our representation to HMRC will be that relief for at least this duration should be retained under the FIG regime. We await details of how the rule changes will impact UK resident, and currently non-dom, IMEs and their employers, where dual contract arrangements are in place. What are the next steps before the FIG regime rules are finalised? Draft legislation will be prepared and HMRC will publish it for comment. BDO will make representations on the draft rules via HMRC’s expat forum to ensure HMRC delivers on its promise of a ‘simpler and more attractive’ regime for IMEs. What planning opportunities may there be? Employers of IMEs should seek guidance on the timing of assignments, for clarity on the implications of the current ‘non-dom regime’ and how this is impacted from 6 April 2025. Advice will also be required on the application of the transitional rules on UK-based IMEs once further details of the rules are known. Are the changes a good idea? We consider it important for the UK to retain tax concessions against a competitive global landscape for IMEs, as a measure to attract talent and encourage inward investment. It’s therefore reassuring that the government has recognised this in the new proposals. We also welcome the fact the government has listened to our feedback that the previous remittance rules were far too complex and counterproductive to the UK economy, by discouraging IMEs from bringing money to spend in the UK. Subject to sight of further details of the FIG regime, we consider there’s potential to access additional legitimate tax savings for employers, and their IMEs, who seek professional guidance. n
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| Professional in Payroll, Pensions and Reward |
Issue 100 | May 2024
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