Budget 2025: Tax residence

Residence-based tax regime: technical amendments

Several small amendments have been made to the way the legislation introduced from April 2025 will be applied including in relation to the Foreign Income and Gains (FIG) regime, Overseas Workday Relief (OWR) and the Temporary Repatriation Facility (TRF).

The changes will be retrospective and do not fundamentally change any of the areas affected but ensure that these work as intended.

The FIG regime will provide 100% relief on overseas income and gains for the first 4 years of tax residency for newly arrived individuals, provided that they have not been a UK tax resident in any of the 10 consecutive years prior to arrival. These individuals will still be able to claim OWR during the same period, capped at the lower of 30% of their total employment income and £300,000.

The TRF is now open to any individual who has previously used the remittance basis and will allow previously unremitted income and gains that has not been subject to UK tax to be designated and remitted to the UK at a reduced rate of tax – 12% in 2025-26 and 2026-27 and 15% in 2027-25.

Their has been no significant changes to the residency based IHT rules which came into force on 6th April 2025 which have replaced the historic domicile-based system. Any individual deemed to be a long-term UK tax resident, defined as having been a tax resident for 10 or more of the last 20 tax years, will be subject to UK IHT on their worldwide estate. Upon leaving the UK, the individual will be subject to a “tail” of between 3 and 10 years, where their assets will remain exposed to UK IHT during that time.

Overseas settlements will similarly be brought into the UK tax net at any time when the settlor is treated as a long-term UK tax resident.

Temporary non-residence rules – post departure trade profits

Under current rules, individuals who become non-resident for UK tax purposes but who return to the UK within a period of 5 years are deemed to be Temporary Non-Resident under anti avoidance legislation, designed to prevent individuals leaving the UK for short periods of time for tax reasons. If they return within the 5 years certain income and gains that arose in the period come back into charge, taxed in the year of return.

For Income Tax purposes this historically has applied to dividends, but only those paid from pre-departure profits – i.e. profits accumulated in the company before the individual left the UK.

The changes which will apply from 6th April 2026 will bring all dividends paid during the period into charge if the individual returns to the UK within 5 years.

This only affects dividends (and distributions) from closely held UK companies, so dividends received from publicly listed companies, for example, have never been brought into charge and remain outside it. Salaries are also not caught.

The government is therefore legislating to make agents – who they believe have the control over the supply chain – and the end user, jointly and severally liable to the PAYE that should be accounted for where there is an umbrella company in the supply chain. In essence, they are moving the burden to the agency (or the end user if they have the direct relationship with the worker).