FIG regime: the year-five cliff most arrival plans miss

FIG relief ends after four tax years with no taper, and worldwide IHT starts in year eleven. Both dates are fixed on arrival. Most plans model neither.

The abolition of the remittance basis on 6 April 2025 produced a great deal of advice about the four years that replaced it, and very little about the fifth. That is the wrong way round. The four-year foreign income and gains regime is simple, generous and well documented. Year five is where the planning either holds or collapses, and it arrives on a date that can be calculated the day somebody lands.

A second problem compounds it. Inheritance tax moved to a residence test on the same day, but its clock counts ten years out of twenty, not four. Two clocks now govern a new arrival's position, they start together, they run at different speeds, and almost every structure we are asked to review has been built against only one of them.

What the four years actually give

The relief sits in section 845B of the Income Tax (Trading and Other Income) Act 2005, inserted by section 37 of the Finance Act 2025. An individual is a qualifying new resident for a tax year if they are UK resident in it and were not UK resident in any of the ten tax years before it. That year and the next three tax years form the window. In each of them the individual can claim relief on foreign income and foreign chargeable gains, and — unlike the remittance basis it replaced — the money can be brought into the UK and spent without a further charge. For somebody whose wealth sits outside the UK, that is a materially better deal than the regime it succeeded.

It is not free. HMRC's manual at RFIG43000 confirms that a claim for a tax year costs the personal allowance for that year, and the claim also removes the capital gains annual exempt amount. Claims are made year by year, so a year can be skipped. For an arrival with significant foreign income the trade is obvious; for one with modest foreign income and substantial UK earnings it may not be, and the calculation has to be run each year rather than decided once on arrival.

Three details matter more than they first appear. The ten-year look-back is tested on tax years of residence, determined by the Statutory Residence Test in Schedule 45 of the Finance Act 2013 — not on where somebody felt they lived. The window is four consecutive tax years from the first qualifying year, whether or not relief is claimed in each of them, so a year spent in the UK before the relief was wanted still uses one of the four. And the window was backdated: anyone who arrived after ten years away in 2022-23, 2023-24 or 2024-25 is treated as having started their four years then, and gets only what remains of them.

The cliff at year five

At the start of the fifth tax year of the window the relief ends. There is no taper, no transitional rate and no further election. Worldwide income and gains become taxable in the UK on the arising basis, at full rates, from that day.

The practical effect is a step change rather than a gradient. A founder drawing dividends from an offshore holding company pays no UK tax on them in years one to four — provided the company itself stays non-UK resident, which a founder running it from London can undermine — and the full dividend rate from year five. A portfolio generating foreign interest and realised gains moves from untaxed to taxed in a single step. Where the foreign income is substantial, the change in annual tax cost can exceed the entire planning fee that produced the original structure.

The four years are not a transition into the UK tax system. They are a holiday from it, and the system resumes at full rate on a known date.

What makes this dangerous is not the rule, which is clear, but the planning horizon it invites. Advice given on arrival is naturally framed around the relief being claimed now. Unless somebody states the year-five date explicitly and puts it in front of the client, the structure is quietly optimised for a window that closes.

The second clock, running at a different speed

Inheritance tax moved from domicile to residence on the same date. Section 44 of the Finance Act 2025 inserted section 6A into the Inheritance Tax Act 1984: an individual is a long-term UK resident for a whole tax year if they were UK resident for at least ten of the previous twenty tax years. A long-term resident's non-UK assets are no longer excluded property, so the estate is within IHT on a worldwide basis.

Because the test looks only at previous years, the tenth year of residence is not itself a long-term year. Status arrives on 6 April at the start of the eleventh. The two clocks therefore do not align, and the gap between them is the part that gets missed:

• Income and gains relief: tax years one to four, then gone.
• Worldwide IHT exposure: from the start of tax year eleven.

That leaves a six-year corridor, years five to ten, in which a resident pays UK tax on worldwide income and gains but is not yet within worldwide IHT scope. For anyone intending to make substantial gifts of non-UK assets before the estate becomes exposed, that corridor is the planning window, and it is finite. An outright gift of non-UK assets made in year nine is a transfer of excluded property; the same gift in year eleven is a potentially exempt transfer that stays inside the estate for seven years.

Trusts are where the old instincts fail. Under the domicile rules, non-UK assets settled by a non-domiciled settlor generally stayed excluded property for good. Under section 48ZA of the 1984 Act, inserted by section 45 of the Finance Act 2025, the test is applied continuously: while the settlor is alive, the trust's non-UK property is excluded only at times when the settlor is not a long-term resident. A trust funded in the corridor does not lock in the corridor's position. When the settlor reaches year eleven, the trust's foreign assets come within the relevant property regime.

There is a tail on the way out as well. Leaving the UK does not end long-term resident status immediately. Under section 6A the status continues until the individual has been non-resident for a required number of consecutive tax years: three for someone resident in thirteen or fewer of the relevant twenty years, rising by one for each additional year of residence to a maximum of ten. A departure plan built on the assumption that exposure stops when the plane does will be wrong by at least three years.

A worked example

Consider a founder who has been non-UK resident throughout, arrives in the UK in the 2025-26 tax year, and holds a non-UK resident company distributing £800,000 a year.

Years one to four (2025-26 to 2028-29). FIG relief is claimed each year. The £800,000 is relieved and can be remitted and spent. The personal allowance and CGT annual exempt amount are forgone; at that level of income the personal allowance would have been tapered away in any case.

Year five (2029-30). Relief ends. The same £800,000 is taxable on the arising basis at UK dividend rates. At 2026-27 rates — 10.75%, 35.75% and 39.35%, with a £500 dividend allowance — the bill on £800,000 of dividends is roughly £300,000 a year. Rates for 2029-30 are not yet set, but nothing about the company, the distribution or the founder's circumstances has changed — only the tax year number.

Years five to ten (2029-30 to 2034-35). Worldwide income and gains are taxed; non-UK assets are not yet within IHT. This is the corridor. Outright gifts of non-UK assets are outside IHT here in a way they will not be from year eleven.

Year eleven (2035-36). The founder has been resident in ten of the previous twenty tax years. Long-term resident status is reached on 6 April 2035. Worldwide assets fall within IHT. The corridor has closed. If the founder left at the end of 2034-35 instead, ten years of residence would mean a three-year tail on the way out.

The point of setting it out this way is that every one of those dates was knowable in 2025. None of it depends on a change in law, a market movement or a decision not yet taken. A plan that models only the first four years is not incomplete — it is a plan for a situation that ends on a date already in the diary.

What the transitional reliefs do and do not solve

Two of the transitional measures that accompanied the change matter here, and neither addresses the cliff.

The temporary repatriation facility in Schedule 10 to the Finance Act 2025 lets a former remittance basis user designate foreign income and gains that arose before 6 April 2025 and pay a flat charge on them: 12% for designations in a return for 2025-26 or 2026-27, and 15% for 2027-28, after which the facility closes. The charge falls on the amount designated, whether or not it is brought to the UK that year; designated amounts can then be remitted without further tax. Schedule 3 to the Finance Act 2026 adjusted the facility's mechanics but left the rates and years unchanged. For somebody sitting on a substantial pre-reform offshore balance, the difference between designating for 2026-27 and leaving it until 2027-28 is three percentage points of the whole amount. That is an arithmetic decision with a deadline, not a judgement call.

Separately, Schedule 11 rebases personally held foreign assets to their 5 April 2017 values on a disposal after 5 April 2025, for individuals who claimed the remittance basis in at least one year from 2017-18 to 2024-25 and meet the other conditions. This reduces the gain brought into UK charge, but it applies to the historic base cost — it does nothing about income arising after year four.

Both reliefs soften what happened before the reform. The step change at year five remains the same size.

What to decide, and when

The useful output of this analysis is a short list of dates, not a recommendation to restructure.

On arrival, calculate and record two dates: the first day of the fifth tax year of the window, and the first day of the eleventh tax year of residence. Both follow arithmetically from the arrival year. Put them in the file.

Before year four closes, run the year-five position on the actual numbers, not the arrival-year estimate. The question is whether the structure that was right when income was relieved is still right when it is taxed — and that question has a different answer depending on whether the income is dividends, interest, trading profit or realised gains.

During the corridor, decide whether anything should be given away before worldwide IHT exposure begins, and stop treating a new trust as a permanent shelter. This is the decision with the longest lead time and the shortest practical window, and it is the one most often reached too late.

Before any departure, count the years of residence and model the IHT tail rather than assuming exposure ends with residence.

None of this requires a view on whether the reform was good policy. It requires somebody to have written down two dates on the day the client arrived, and to have looked at them again before the first one passed.