Dear Reader,
The Finance Act 2025 rewrites the UK rule-book for foreign money. This article spells out, in plain English, what the changes mean if you already have offshore funds, are new to the UK, or are thinking of leaving – and offers practical pointers on keeping your tax bill under control.
The Finance Act 2025 has recast the United Kingdom’s approach to taxing foreign income and gains. The legislation is markedly shorter than its predecessors, yet its effect is profound: it abolishes the remittance basis for new foreign income and gains, establishes a four-year foreign-income-and-gains exemption for newcomers, and confirms the circumstances in which long-term residents remain exposed to inheritance tax on their worldwide estates. HMRC has issued detailed explanatory material that should be consulted alongside the primary legislation, but what follows provides a structured explanation of the principal rules and of the planning that individuals ought to consider.
A first group comprises those who have been resident in the United Kingdom for many years, have relied on the remittance basis and, because they spent at least one of the ten tax years preceding 2025-26 in the United Kingdom, cannot enter the four-year regime. They retain two statutory mechanisms for introducing historic offshore money. The Temporary Repatriation Facility (TRF) imposes a flat charge of 12 per cent in 2025-26 and 2026-27, rising to 15 per cent in 2027-28, on pre-2025 foreign income and gains that are brought into, or used in, the United Kingdom. Business Investment Relief (BIR) offers a broader exemption: an individual may lend money to, subscribe for shares in, or purchase shares of a United Kingdom trading company – including one that develops or manages UK real estate – provided that the funds represent foreign income or gains arising before 6 April 2025. The money must reach the company or seller within forty-five days of arriving in a UK bank account, and the investment must be made by 5 April 2028. Qualifying investments may use ordinary shares, preference shares or commercial loans; structures whose main purpose is to extract value for the investor or a connected person are barred, but normal commercial returns are acceptable. HMRC offers a statutory clearance, usually issued within thirty days, which is invaluable where the investment is substantial or novel.
BIR may be combined with the Enterprise Investment Scheme (EIS) or the Seed Enterprise Investment Scheme (SEIS) where the investee meets the relevant conditions. The same subscription then both avoids a UK tax charge on the remitted funds and generates an income-tax credit – 30 per cent under EIS and 50 per cent under SEIS – thereby reducing UK tax on other income; qualifying disposals after three years are exempt from capital gains tax. Where liquidity, rather than investment, is required, borrowing remains an option. The loan must come from an unconnected lender; interest must be serviced from funds that have already suffered UK tax or from clean capital; and, if secured, the collateral must be a UK asset or a foreign asset acquired with clean capital. If the lender is in a jurisdiction without a double-tax treaty, the borrower must withhold income tax at the basic rate – currently 20 per cent – unless the debt is structured as a deeply discounted security so that no periodic interest arises. Experience indicates that HMRC will accept rolled-up interest for up to ten years, but each arrangement needs bespoke analysis.
A further option for individuals who wish to remain UK-resident is to use vehicles that defer the tax charge. One route is to acquire interests in offshore non-reporting funds: income and gains roll up inside the fund without annual UK taxation and are taxed only on disposal, when the profit is an offshore income gain assessed at the investor’s marginal rate. The deferral aids compounding, but the eventual rate is higher than the capital gains tax rate that applies to a reporting fund. A second route is to take out offshore life-assurance (insurance) bonds. Income and gains accrue inside the bond free of UK tax until a chargeable event occurs, and the policy-holder may withdraw up to five per cent of the original premium each policy year on a cumulative basis without an immediate charge. Any taxable gain benefits from top-slicing relief and, if the holder is non-resident for part of the term, a proportionate reduction may apply. Both structures were examined in the previous article and remain legitimate deferral mechanisms, provided the underlying investments are suitable and the investor is ready for the eventual income-tax treatment.
The second group consists of individuals who have not been UK-resident in any of the ten tax years before arrival; they qualify for the four-year foreign-income-and-gains (FIG) regime. For each of their first four tax years of residence, beginning on or after 6 April 2025, the claimant may nominate that all foreign income and foreign chargeable gains are exempt from UK income tax and capital gains tax. The claim must be renewed annually and must be accompanied by a full disclosure of worldwide income and gains. This transparency creates practical challenges. Employees relying on the re-framed Overseas Workday Relief (OWR) find that the exemption is capped at the lower of 30 per cent of the overseas element of remuneration and £300,000, so high salaries bear a UK charge once the cap is exceeded. Shareholder-directors of foreign companies must recognise that HMRC, seeing their disclosure, may enquire into where the company’s central management and control is exercised; if that is found to be in the United Kingdom, the company becomes UK-resident and its dividends fall outside the four-year exemption. A comparable risk arises under the transfer of assets abroad (TOAA) code. The code lies dormant during the four-year FIG period, but it applies from year five. If a foreign company can satisfy the motive defence – broadly, that no tax-avoidance purpose exists – it is prudent to secure that defence now and to maintain conduct that preserves it so the company’s income is not automatically attributed to UK shareholders or creditors when the FIG period ends.
The third category covers individuals who, on 6 April 2025, will have been UK-resident for at least ten of the previous twenty tax years. These long-term residents are automatically within scope of UK inheritance tax on their worldwide assets, including assets held through offshore trusts. They remain exposed for the three tax years following their final year of residence, so many intend to cease residence in 2025-26 in order to avoid the three-year tail as early as possible. Residence is determined for the entire tax year, meaning that a departure late in spring 2025 can still secure non-resident status for the whole year if the individual limits UK presence until 5 April 2026. A claim for split-year treatment removes post-departure income and gains from UK income tax and CGT, but it does not shorten the inheritance-tax tail.
The statutory residence test contains three strands: the automatic overseas residence tests, the automatic UK residence tests and, if neither set applies, the sufficient-ties test. For many leavers the optimal path is to satisfy the full-time-work-overseas test, an automatic overseas test. It requires an average of thirty-five working hours a week overseas in a continuous twelve-month period that falls wholly or partly in the tax year, fewer than thirty-one UK workdays and fewer than ninety-one UK days in total. Actual hours are measured, not contractual promises, so a diary, timesheets, digital audit trails and travel records are essential. Employment or consultancy contracts should state expressly that the individual will work overseas on terms that keep within the statutory residence test, limit UK workdays and cap UK presence. The individual may keep a home and family in the United Kingdom without losing non-resident status, provided the numerical limits are met.
If the full-time-work-overseas test is not met, the taxpayer must avoid the automatic UK home test. This deems an individual UK-resident if they own or rent a UK home and spend at least thirty separate days there in the tax year, unless they also have a permanent home overseas and spend at least thirty days in that overseas home. Problems often arise when the person keeps a UK house but simply travels abroad. If accommodation abroad consists only of short-term rentals, hotel rooms or a summer house – or if the overseas home is occupied for fewer than thirty days – there is, in practice, no permanent overseas home, and the UK property remains the enduring base. In that case the automatic UK home test treats the individual as resident unless an automatic overseas test already applies. (A further automatic UK test is based on full-time work in the United Kingdom, but individuals who are actively leaving rarely work an average of thirty-five hours a week in the UK for a twelve-month period.) HMRC will scrutinise both the UK property and the supposed overseas home, examining permanence, year-round availability and the quality and regularity of occupation. Only when the automatic UK tests are ruled out does the sufficient-ties test apply, with its limits based on family, accommodation, ninety-day presence and the country tie.
These rules create distinct strategic considerations. Long-term remittance-basis users must decide whether to import historic offshore wealth through the TRF or BIR while weighing the inheritance-tax consequences of continued residence. New arrivals enjoy a generous four-year exemption but must accept full disclosure and plan early for the period after it expires. Prospective leavers must understand the statutory residence test in detail and document their activities precisely so they can demonstrate non-resident status and start the three-year inheritance-tax tail at the earliest practicable time.
In conclusion, the Finance Act 2025 does not merely shorten the legislation; it alters the balance of risks and opportunities for every internationally mobile taxpayer. The available reliefs are valuable, but each is bounded by strict conditions and by an expectation of full transparency. Whether the objective is to invest offshore profits in the United Kingdom, to exploit the four-year exemption on arrival or to end exposure to UK taxes altogether, timely analysis, meticulous documentation and careful contractual drafting are now indispensable elements of prudent tax planning.
With warm regards
Dmitry Zapol
Partner, international tax advisor, ADIT (Affiliate)
IFS Consultants, London
(www.ifsconsultants.com, dmitry@ifsconsultants.com)