CenTax published an interesting piece (‘Non-dom reforms and revenue realities’ (Andy Summers & Arun Advani, Tax Journal, 7 November 2025) regarding the non-dom reforms, suggesting ways in which the new regime could be improved. I would make some additional comments.
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 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). Consider also Louwman v HMRC [2025] UKFTT 295 (TC), where trust protections were held not to apply to OIGs realised within trusts. 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 beware of gods carrying gifts. If the Government wants to encourage people to come here, it should first sort out the flaws in the existing FIG exemption regime before trying to extend it. 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 it is this group that can then access the FIG relief. 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))? 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 itemise every item of foreign income and gain? This will involve a great deal of compliance, especially if the arriver is settlor of a large trust with many different overseas companies. Gains have to be calculated in sterling, which many will overlook. HMRC’s need for data could be met more simply – for example, allowing a 10% margin of error rather than itemising every amount.
A third difficulty about the current FIG regime is that it does not exempt all FIGs. For example, offshore assurance bonds are attractive investments for Europeans, yet are outside the FIG exemption. 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.
A fourth trap is the differing treatment of trust capital distributions for CGT and income tax. For CGT purposes, a capital payment is ignored both when received and going forward; under income tax, a benefit that exceeds the pool of relevant income in the trust may be taxed after the four-year period against future relevant income.
CenTax suggests the FIG regime could be improved by exempting UK income and gains in order to encourage investment here. This raises complexities:
CenTax also notes the cliff-edge effect of the IHT changes. In practice, it is doubtful that this is really such an issue. There was always a cliff edge; the new one is merely earlier and can often be mitigated through trusts, gifts or term assurance.
In short, IHT is usually a manageable tax and the cliff edge is more of a hill to climb over. A bigger cliff edge problem is the four-year exemption for QNRs. Other jurisdictions charge a fee for exemption, whereas the UK offers it for free. The FIG regime seems to be currently viewed by some QNRs (especially successful businessmen) as an open offer to realise their gains tax free and then depart, paying very little to the UK.
Four years is not long to put down roots, so greater incentives are needed to encourage the entrepreneurs to stay. A flat annual fee in the first four years and more generous reliefs in the next six years 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 judge how successful the FIG regime really is in encouraging people to come to and remain in the UK.
CenTax published an interesting piece (‘Non-dom reforms and revenue realities’ (Andy Summers & Arun Advani, Tax Journal, 7 November 2025) regarding the non-dom reforms, suggesting ways in which the new regime could be improved. I would make some additional comments.
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 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). Consider also Louwman v HMRC [2025] UKFTT 295 (TC), where trust protections were held not to apply to OIGs realised within trusts. 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 beware of gods carrying gifts. If the Government wants to encourage people to come here, it should first sort out the flaws in the existing FIG exemption regime before trying to extend it. 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 it is this group that can then access the FIG relief. 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))? 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 itemise every item of foreign income and gain? This will involve a great deal of compliance, especially if the arriver is settlor of a large trust with many different overseas companies. Gains have to be calculated in sterling, which many will overlook. HMRC’s need for data could be met more simply – for example, allowing a 10% margin of error rather than itemising every amount.
A third difficulty about the current FIG regime is that it does not exempt all FIGs. For example, offshore assurance bonds are attractive investments for Europeans, yet are outside the FIG exemption. 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.
A fourth trap is the differing treatment of trust capital distributions for CGT and income tax. For CGT purposes, a capital payment is ignored both when received and going forward; under income tax, a benefit that exceeds the pool of relevant income in the trust may be taxed after the four-year period against future relevant income.
CenTax suggests the FIG regime could be improved by exempting UK income and gains in order to encourage investment here. This raises complexities:
CenTax also notes the cliff-edge effect of the IHT changes. In practice, it is doubtful that this is really such an issue. There was always a cliff edge; the new one is merely earlier and can often be mitigated through trusts, gifts or term assurance.
In short, IHT is usually a manageable tax and the cliff edge is more of a hill to climb over. A bigger cliff edge problem is the four-year exemption for QNRs. Other jurisdictions charge a fee for exemption, whereas the UK offers it for free. The FIG regime seems to be currently viewed by some QNRs (especially successful businessmen) as an open offer to realise their gains tax free and then depart, paying very little to the UK.
Four years is not long to put down roots, so greater incentives are needed to encourage the entrepreneurs to stay. A flat annual fee in the first four years and more generous reliefs in the next six years 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 judge how successful the FIG regime really is in encouraging people to come to and remain in the UK.
