From 6 April 2025, the UK introduced and optional system that provides a 100% exemption from UK tax on qualifying foreign income and gains for eligible individuals in their first four years of UK tax residence.
The types of income that are ‘qualifying’ are many, and include:
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profits of a trade carried on wholly outside the UK
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profits of an overseas property business
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interest, such as interest paid on a foreign bank account
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dividends from non-UK resident companies
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purchased life annuity payments
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royalties and other income from intellectual property
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foreign pension income
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foreign social security benefits
The types of gains which are ‘qualifying’ are, to cut a much monger story short, gains which come from the sale of assets not located in the UK. For shares that you own, that means that shares of companies incorporated in the UK are not ‘Qualifying’, but all other shares are. For mutual funds, what matters is where the particular mutual fund (ETF or otherwise) has its register – for most living outside of the UK, it is generally preferable to hold units in mutual funds which are not themselves based in the UK.
Eligibility
You will be eligible provided you have not been a UK tax resident in any of the ten UK tax years immediately before your arrival.
Use of the regime in any given year is claimed via a tick-box within your UK Self-Assesment, and you may do so during any of those first 4 tax years (note that you may opt to use it in some years and not others)
The Trade-Off
Claiming the FIG regime in any given year requires forfeiting the UK Personal Allowance (£12,570) and the annual CGT exempt amount (£3,000) for that year.
On a UK salary of approximately £70,000 per annum, the loss of the Personal Allowance costs £5,028 in additional income tax at the 40% higher rate (or £2,514 at the 20% basic rate if income is below £50,270).
The regime must therefore be claimed selectively, only in years where the tax saved on foreign income or gains exceeds this cost.
Specific Uses
Those who have been out of the UK for long enough and have CPF to extract from Singapore may find the use of the FIG advisable if their CPF is paid out whilst they are UK tax resident.
Anyone selling any overseas property, shares or mutual funds after a long time living outside of the UK need not sell before their return (as was once certainly advisable), but can delay those sales for as much as 4 teax years as desired.
David N Hood
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