CenTax published an interesting piece in Tax Journal on 7 November 2025 regarding the non-dom reforms, suggesting ways in which the new regime could be improved. I would make some additional comments as follows.
The new FIG exemption regime for qualifying new residents (QNRs) operates like many UK tax reliefs: it appears very generous – in some ways too generous – and yet it also holds traps for the unwary. Wealthy non-doms have in the past been caught out by traps in relation to other reliefs designed to encourage them to invest or stay here: see, for example, business investment relief introduced in 2012 and the decision of the Upper Tribunal in d’Angelin v HMRC [2025] UKUT 212 (TCC). This decision on one view makes the relief wholly useless for groups of companies. Consider also the fact that trust protections have now been held not to apply to OIGs realized within trusts where a UK resident settlor was not on the remittance basis between 2017 and 2025. See Louwman v HMRC [2025] UKFTT 295. In both cases the complexity of the legislation led to dispute with HMRC, long term uncertainty, litigation and then an unexpected curtailing of a relief. The FIG exemption legislation potentially has some similar problems.
So QNRs should perhaps beware of gods carrying gifts. If the Government wants to encourage people to come here, it should first devote some energy to sorting out the flaws in the existing FIG exemption regime before trying to extend it further. Here are a few suggestions:
Firstly, the purpose of the relief is to encourage people to come here who have not been UK resident for ten consecutive years. (as only then can they access the FIG relief for QNRs). Presumably the Government therefore wants to make it as easy as possible for such arrivers. Why then is a taxpayer not to be permitted to make a consequential claim for relief if they inadvertently fail to identify an item of foreign income/gain (ITTOIA 2005 s 845A(6))? Admittedly, that restriction only applies if they are careless but HMRC will no doubt argue that every new arriver who fails to declare an item of foreign income/gain is careless.
Secondly, why make QNRs itemize every item of foreign income and gain, put it down on their tax return and then have to deduct it (and the manner of the deduction is not in itself entirely clear)? A great deal of compliance will be involved in this, especially if the arriver is settlor of a large trust with many different overseas companies. For example, some will not realise that gains have to be calculated in sterling and fail to understand they have made a gain in sterling terms even if not in the foreign currency. Of course, HMRC and the Government want to know how much FIG is being sheltered from tax and therefore the cost of the relief so simply exempting all FIGs as the default option is unlikely to be acceptable. However, there are easier ways of achieving this objective. Taxpayers could be given a margin of error of say 10% either way when declaring FIGs rather than having to itemize it precisely, unless treaty relief is important to them, in which case they can be given the option to itemise. The need for enough data to support policy evaluation has to be balanced against the administrative costs placed on the taxpayer.
A third difficulty about the current FIG regime is that it does not exempt all FIGs. For example, life assurance bonds are very common and are attractive investments for Europeans yet are outside the FIG exemption. The inability to claim relief in respect of chargeable event gains or personal portfolio bond charges is a real trap for the unwary. The argument is that as such investments did not benefit from the remittance basis they cannot benefit from this regime but since the old remittance regime has been consigned to history as unacceptable surely that argument is misconceived. If the objective is to create a short dated but attractive regime for individuals moving to the UK then make that regime generous and easy. Unlike the old remittance regime this one is time limited.
A fourth trap is that the tax treatment of trust capital distributions differs as between CGT and income tax. For CGT purposes a capital payment is treated as if it had been received by a non-resident and therefore ignored both when received and going forward. Nor does the capital payment reduce or get matched to the trust gains. It is therefore ignored. The income tax rules do not follow the same approach and potentially a benefit that exceeds the pool of relevant income in the trust can be taxed after the four year period against future relevant income.
The CenTax article suggests the FIG regime could be improved by exempting UK income and gains in order to encourage investment here. This raises certain complexities that need considering:
Another objection raised by CenTax is the cliff edge effect of the IHT changes. After ten years someone is subject to IHT at 40%. In practice it is doubtful that this is really such an issue. There was always a cliff edge before – it just occurred after 15 years, and to some extent could be mitigated by use of trusts (as is in fact the case now). The cliff edge here is partly smoothed out by the fact that taxpayers remain within the IHT net for a shorter time if they are here for a lesser period. So if they leave after 13 years they are only subject to an ‘IHT tail’ for three years after departure. Most younger clients who think they might have to stay a few extra years and then leave will be able to deal with the IHT concern in a very practical way simply by taking out some term assurance. Many will be married and have the benefit of spouse exemption or they may just make gifts and set up structures while they are still not a long term resident. They can set up trusts in the first ten years and avoid an entry charge and 40% on death if they are excluded.
In short, IHT is often a manageable tax and the cliff edge is more of a hill to climb over. In my view, a much bigger cliff edge problem view is the four year exemption for QNRs. Most other jurisdictions such as Italy, Switzerland and Greece extract a fee if a new arriver wants to obtain exemption from normal taxation. In the case of the UK we offer complete exemption without any fee. The FIG regime seems to be viewed by some QNRs (especially successful businessmen) at the moment as an open offer to enable them to come here, realise their gains tax free and then depart paying very little to the UK government. For others, especially younger people, they would have come here anyway, and just regard the four year regime as a bonus. It is arguably costing UK PLC money but not as such affecting behaviour. Italy has stricter rules to prevent people immigrating and realizing all their gains on private company sales in the first five years.
Moreover, four years is not long to put down roots so greater incentives are needed to encourage the entrepreneurs to stay, particularly as it is very much harder to avoid paying income tax and CGT on worldwide income tax and gains from the fifth year than it is to avoid paying IHT on death. I would suggest that when they have more data the Government reconsiders this regime and makes it less generous in the first four years (perhaps with a flat rate annual fee to access exemption) but more generous in the next six years, so people can still access the FIG regime but they have to pay progressively higher fees based on bands of wealth.
Keeping them in a simple but more expensive regime might be better than just letting them depart.
However, as CenTax observes, the data is uncertain as yet as to the effect of the 2025 changes on non-dom behaviour. It will be even longer before we can assess how successful the FIG regime really is in encouraging people to come to the UK and stay here.
CenTax published an interesting piece in Tax Journal on 7 November 2025 regarding the non-dom reforms, suggesting ways in which the new regime could be improved. I would make some additional comments as follows.
The new FIG exemption regime for qualifying new residents (QNRs) operates like many UK tax reliefs: it appears very generous – in some ways too generous – and yet it also holds traps for the unwary. Wealthy non-doms have in the past been caught out by traps in relation to other reliefs designed to encourage them to invest or stay here: see, for example, business investment relief introduced in 2012 and the decision of the Upper Tribunal in d’Angelin v HMRC [2025] UKUT 212 (TCC). This decision on one view makes the relief wholly useless for groups of companies. Consider also the fact that trust protections have now been held not to apply to OIGs realized within trusts where a UK resident settlor was not on the remittance basis between 2017 and 2025. See Louwman v HMRC [2025] UKFTT 295. In both cases the complexity of the legislation led to dispute with HMRC, long term uncertainty, litigation and then an unexpected curtailing of a relief. The FIG exemption legislation potentially has some similar problems.
So QNRs should perhaps beware of gods carrying gifts. If the Government wants to encourage people to come here, it should first devote some energy to sorting out the flaws in the existing FIG exemption regime before trying to extend it further. Here are a few suggestions:
Firstly, the purpose of the relief is to encourage people to come here who have not been UK resident for ten consecutive years. (as only then can they access the FIG relief for QNRs). Presumably the Government therefore wants to make it as easy as possible for such arrivers. Why then is a taxpayer not to be permitted to make a consequential claim for relief if they inadvertently fail to identify an item of foreign income/gain (ITTOIA 2005 s 845A(6))? Admittedly, that restriction only applies if they are careless but HMRC will no doubt argue that every new arriver who fails to declare an item of foreign income/gain is careless.
Secondly, why make QNRs itemize every item of foreign income and gain, put it down on their tax return and then have to deduct it (and the manner of the deduction is not in itself entirely clear)? A great deal of compliance will be involved in this, especially if the arriver is settlor of a large trust with many different overseas companies. For example, some will not realise that gains have to be calculated in sterling and fail to understand they have made a gain in sterling terms even if not in the foreign currency. Of course, HMRC and the Government want to know how much FIG is being sheltered from tax and therefore the cost of the relief so simply exempting all FIGs as the default option is unlikely to be acceptable. However, there are easier ways of achieving this objective. Taxpayers could be given a margin of error of say 10% either way when declaring FIGs rather than having to itemize it precisely, unless treaty relief is important to them, in which case they can be given the option to itemise. The need for enough data to support policy evaluation has to be balanced against the administrative costs placed on the taxpayer.
A third difficulty about the current FIG regime is that it does not exempt all FIGs. For example, life assurance bonds are very common and are attractive investments for Europeans yet are outside the FIG exemption. The inability to claim relief in respect of chargeable event gains or personal portfolio bond charges is a real trap for the unwary. The argument is that as such investments did not benefit from the remittance basis they cannot benefit from this regime but since the old remittance regime has been consigned to history as unacceptable surely that argument is misconceived. If the objective is to create a short dated but attractive regime for individuals moving to the UK then make that regime generous and easy. Unlike the old remittance regime this one is time limited.
A fourth trap is that the tax treatment of trust capital distributions differs as between CGT and income tax. For CGT purposes a capital payment is treated as if it had been received by a non-resident and therefore ignored both when received and going forward. Nor does the capital payment reduce or get matched to the trust gains. It is therefore ignored. The income tax rules do not follow the same approach and potentially a benefit that exceeds the pool of relevant income in the trust can be taxed after the four year period against future relevant income.
The CenTax article suggests the FIG regime could be improved by exempting UK income and gains in order to encourage investment here. This raises certain complexities that need considering:
Another objection raised by CenTax is the cliff edge effect of the IHT changes. After ten years someone is subject to IHT at 40%. In practice it is doubtful that this is really such an issue. There was always a cliff edge before – it just occurred after 15 years, and to some extent could be mitigated by use of trusts (as is in fact the case now). The cliff edge here is partly smoothed out by the fact that taxpayers remain within the IHT net for a shorter time if they are here for a lesser period. So if they leave after 13 years they are only subject to an ‘IHT tail’ for three years after departure. Most younger clients who think they might have to stay a few extra years and then leave will be able to deal with the IHT concern in a very practical way simply by taking out some term assurance. Many will be married and have the benefit of spouse exemption or they may just make gifts and set up structures while they are still not a long term resident. They can set up trusts in the first ten years and avoid an entry charge and 40% on death if they are excluded.
In short, IHT is often a manageable tax and the cliff edge is more of a hill to climb over. In my view, a much bigger cliff edge problem view is the four year exemption for QNRs. Most other jurisdictions such as Italy, Switzerland and Greece extract a fee if a new arriver wants to obtain exemption from normal taxation. In the case of the UK we offer complete exemption without any fee. The FIG regime seems to be viewed by some QNRs (especially successful businessmen) at the moment as an open offer to enable them to come here, realise their gains tax free and then depart paying very little to the UK government. For others, especially younger people, they would have come here anyway, and just regard the four year regime as a bonus. It is arguably costing UK PLC money but not as such affecting behaviour. Italy has stricter rules to prevent people immigrating and realizing all their gains on private company sales in the first five years.
Moreover, four years is not long to put down roots so greater incentives are needed to encourage the entrepreneurs to stay, particularly as it is very much harder to avoid paying income tax and CGT on worldwide income tax and gains from the fifth year than it is to avoid paying IHT on death. I would suggest that when they have more data the Government reconsiders this regime and makes it less generous in the first four years (perhaps with a flat rate annual fee to access exemption) but more generous in the next six years, so people can still access the FIG regime but they have to pay progressively higher fees based on bands of wealth.
Keeping them in a simple but more expensive regime might be better than just letting them depart.
However, as CenTax observes, the data is uncertain as yet as to the effect of the 2025 changes on non-dom behaviour. It will be even longer before we can assess how successful the FIG regime really is in encouraging people to come to the UK and stay here.
