COMPLIANCE
“IMEs who qualify for the FIG regime won’t pay tax on foreign income and gains arising in the first four tax years after becoming UK tax resident and will be able to bring these funds to the UK tax free”
l in contrast to the ‘non-dom’ regime, under the FIG regime, foreign income and gains arising from 6 April 2025 can be brought to the UK tax free l IMEs will be able to remit pre-6 April 2025 (untaxed) foreign income and gains, and only be liable to a 12% tax rate during the 2025/26 and 2026/27 UK tax years, rising to 15% in the 2027/28 year. What’s happening to the non- dom regime and what’s being introduced to replace it? The non-dom regime will be replaced on 6 April 2025 by the FIG regime. IMEs who qualify for the FIG regime won’t pay tax on foreign income and gains arising in the first four tax years after becoming UK tax resident and will be able to bring these funds to the UK tax free. “OWR under the FIG regime will be subject to an annual financial limit: the lower of 30% of ‘qualifying’ employment income or £300,000 per tax year”
four-tax year FIG term, even if they arrived pre-6 April 2025. IMEs who arrived in the UK and claimed OWR prior to 6 April 2025, but are ineligible for the new FIG regime, will still be able to claim OWR for three years. OWR under the FIG regime will be subject to an annual financial limit: the lower of 30% of ‘qualifying’ employment income or £300,000 per tax year However, IMEs which are partway through their OWR period at 6 April 2025 won’t be subject to these financial limits. 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 on remittances of pre-6 April 2025 unremitted foreign income for tax years 2025/26 and 2026/27. So, the remittance basis won’t apply to any earnings received from 6 April 2025? Will there be any situations in which an IME would need to be paid offshore to be able to claim OWR? There’s an exception where the remittance basis will still be relevant for earnings from 6 April 2025. This is where there are incentive payments (cash and employer- related securities) which have an earnings period which includes time prior to 6 April 2025. For such payments, OWR will only be available on the portion relating to the period prior to 6 April 2025 if it’s received and retained outside the UK. 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 resident if they make an annual claim for the FIG regime. They’ll be able to remit these funds to the UK without any tax charges, providing the funds arose after 5 April 2025. They will pay tax on UK income and gains. Are there any downsides of opting into the FIG regime for IMEs?
Individuals who opt into the FIG regime will lose their annual exemption for capital gains tax purposes (currently £3,000) and their PA, which is currently £12,570. What does the FIG regime mean for employers of IMEs? OWR being available for an additional year is positive news for employers of tax equalised or partially tax protected IMEs. The removal of the restriction on bringing foreign earnings to the UK also simplifies the tax system and makes claiming the relief less onerous. HMRC has confirmed employers will still be able to operate pay as you earn on a reduced percentage of earnings for IMEs eligible for OWR. However, the new financial limit and the way this limit applies to incentive payments for performance periods spanning earlier UK tax years adds complexity to payroll reporting. The limit may also impact relief available for high earning executives. The exemption to travel costs incurred by non-domiciled employees which are paid for by employers when they come to work in the UK will be reduced from five years to four years. Employers should now be considering how to effectively communicate these changes to their IMEs, as well as revisiting their global mobility tax policy in view of the potential attractiveness to IMEs of remitting previously unremitted (and untaxed) earnings because of the reduced tax rates. What planning opportunities could arise? Employers of IMEs should seek guidance on the timing of assignments. There may be some situations where higher earning executives choose to move to the UK prior to 6 April 2025, as they will then be eligible for OWR (potentially still for four UK tax years) without the financial limit per tax year applying. There may also be situations in which executives will seek to remain non-resident outside the UK or treaty non-resident outside the UK so they aren’t restricted in the amount of earnings which can be considered exempt from UK tax. n
Who’ll be eligible for the FIG regime?
To be eligible for the FIG regime, an individual must have been non-UK tax resident for a period of ten UK tax years immediately prior to their arrival. Guidance states that the statutory residence test will be used to determine tax residence for each tax year. How will a claim for the FIG regime be made? Claims will be made via the UK tax return. Individuals will be able to choose which year(s) they claim for and will also be able to claim on a source-by-source basis. What does this mean for IMEs present in the UK prior to 6 April 2025? IMEs who, on 6 April 2025 have been tax resident in the UK for less than four tax years (after a period of ten years of non-UK tax residence prior to their arrival), will be able to use the FIG regime for any remainder of the
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| Professional in Payroll, Pensions and Reward |
Issue 107 | February 2025
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