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UK’S NEW FIG REGIME: WHAT U.S. EXPATS SHOULD KNOW
The 2025–26 U.K. tax year was the first year under the United Kingdom’s new Foreign Income and Gains (“FIG”) regime. With U.K. taxpayers now preparing returns for that year, Americans living in the U.K. should consider how the new rules interact with their continuing U.S. tax obligations.
The End of the Non-Dom Remittance Basis
Before April 6, 2025, certain U.K.-resident individuals who were not domiciled in the United Kingdom could claim the remittance basis. Broadly speaking, foreign income and gains could remain outside the U.K. tax net unless and until they were remitted to the United Kingdom.
That system was abolished beginning April 6, 2025. The concept of domicile has largely been replaced by a residence-based test for determining how the United Kingdom taxes foreign income and gains.
As a general rule, U.K. residents are now taxed on their worldwide income and gains as they arise. This applies even if the income is retained in a U.S. bank or brokerage account and never transferred to the United Kingdom.
The New Four-Year FIG Exemption
Individuals who become U.K. tax residents after at least 10 consecutive tax years of non-U.K. residence may qualify for the new four-year FIG regime.
Eligible individuals may claim full U.K. tax relief for qualifying foreign income and foreign gains arising during their first four U.K. tax years. The exempt funds may also be brought into the United Kingdom without an additional remittance charge.
The four-year period begins with the individual’s first year of U.K. tax residence. A separate claim must be made for each year. Claimants should also be aware that making a FIG claim generally results in the loss of the U.K. personal allowance and capital gains tax annual exempt amount for that year. A claim is therefore not automatically beneficial, particularly where the foreign income or gains are relatively small.
U.S. Tax Still Applies
The FIG exemption is a U.K. tax provision. It does not exempt the income from U.S. federal taxation.
A U.S. citizen remains subject to U.S. tax on worldwide income, regardless of residence. Accordingly, U.S. interest, dividends, capital gains and other investment income relieved from U.K. tax under the FIG regime generally remain reportable on the individual’s U.S. income tax return.
Because no U.K. tax is paid on FIG-exempt income, the taxpayer will generally have no U.K. foreign tax credit to offset the corresponding U.S. tax. This may be a favorable result for U.S.-source income for which the United States has the primary taxing right, but it may produce an unexpected U.S. liability where the taxpayer assumed that the FIG exemption eliminated tax in both countries.
Careful modeling is therefore advisable before making the U.K. election. The analysis should consider the income’s source, its character under each country’s rules, the U.S.–U.K. income tax treaty and the availability of foreign tax credits.
Investment Accounts Require Special Attention
The new rules make investment selection particularly important for U.S. expats.
U.K.-domiciled mutual funds and other non-U.S. collective investments may be classified as passive foreign investment companies, or PFICs, for U.S. tax purposes. PFIC ownership can result in punitive U.S. tax treatment and extensive Form 8621 reporting.
Conversely, a U.S. mutual fund or exchange-traded fund that is straightforward from a U.S. perspective may be treated as a non-reporting offshore fund in the United Kingdom. Once the taxpayer is outside the four-year FIG period, gains from such a fund may be taxed by the United Kingdom as income rather than at capital-gains rates.
The FIG regime can temporarily shield qualifying foreign investment income and gains from U.K. tax, but it does not solve the underlying U.S.–U.K. investment mismatch. Individuals approaching the end of their four-year period should review their portfolios before the exemption expires.
What U.S. Expats Should Do Now
Americans who moved to the U.K. within the last four tax years should confirm whether they qualify for FIG relief and calculate whether the benefit exceeds the value of the allowances surrendered. They should also coordinate the FIG decision with their U.S. foreign-tax-credit position, review U.S. and non-U.S. investment funds, and begin planning for the new residence-based inheritance-tax rules.
The FIG regime can offer substantial relief, but for a U.S. citizen it is only one half of a two-country calculation.
