Category: Financial Advice

Wealthy individuals left the UK in record numbers due to the 2025/26 tax year changes. More than 10,800 millionaires left in 2024, which shows a dramatic 157% jump from 4,200 the previous year. The UK made a landmark decision to abolish the remittance basis of taxation on April 6th, 2025, which changes everything about how returning residents pay their taxes.

British citizens must thoroughly understand these tax changes. This affects both the 79,000 Brits who moved abroad in 2024 and the 58,000 who came back home. The tax year 2025-26 brings both opportunities and risks. People who lived outside the UK for the last 10 years can enjoy a four-year tax break on foreign income and gains they bring into the country. Their foreign income and gains earned overseas will be taxed at only 12% during the first two tax years, then rise to 15% in year 3.

The new rules come with some serious strings attached. Anyone who spent at least 10 out of 20 tax years in the UK must pay inheritance tax. UK pensions will lose their inheritance tax exemption starting April 6th, 2027. Learning about these seven most important changes could help you avoid paying thousands in extra taxes.

1. If You’re Returning After 10+ Years: What’s New

The April 2025 tax reforms created a key difference between people who’ve been away from the UK for more than a decade and everyone else. British nationals who want to return home should know that this 10-year threshold makes the difference between major tax advantages and standard taxation. These changes have altered the map of finances for anyone thinking about coming back to the UK.

Why the 10-year rule matters

The 10-year rule is the lifeblood of the new Foreign Income and Gains (FIG) regime that replaced the previous remittance basis of taxation. This change ranks among the biggest updates in the UK 2025/26 Tax Year Changes. Your tax treatment upon return now depends on whether you’re classified as a “long-term” or “short-term” non-resident.

Staying away for a full decade provides you remarkable advantages. You’ll be classified as a “long-term non-resident” after spending 10 complete and consecutive tax years outside the UK. This status lets you access the FIG regime’s most generous benefits when you return.

Short-term non-residents face much stricter rules. If you’ve been away for less than 10 complete tax years, standard UK taxation kicks in almost right after your return, and you’ll get very few transitional reliefs.

This difference matters because it affects:

1. Knowing how to bring foreign wealth back to the UK tax-free
2. The rate at which your overseas income will be taxed
3. Your overall tax liability for the first several years after returning

The remittance basis used to let certain non-domiciled individuals avoid UK tax on foreign income and gains that stayed outside the UK before tax year 2025-26. Time-based eligibility criteria have now completely replaced this system.

The statutory residence test plays a significant role in the 10-year rule. Your “clock” toward the 10-year qualification resets if you spend even one day as a UK resident in any tax year. You need careful planning, especially in the years before your planned return.

Eligibility for FIG and inheritance tax relief

The Foreign Income and Gains (FIG) regime has specific requirements beyond the 10-year absence. You must prove non-UK resident status for tax purposes for at least 10 consecutive complete UK tax years right before your return. A single day of UK residence during this time will make you lose these benefits.

Eligible individuals receive substantial benefits, including:

• Four years to bring foreign income and gains into the UK tax-free
• Lower tax rates on foreign income and gains kept overseas (12% in years 1-2, 15% in year 3, and 20% in year 4)
• More flexibility to manage international assets without UK tax liability

In spite of that, the 10-year non-residence requirement doesn’t free you from all UK tax obligations. Long-term non-residents must still watch out for inheritance tax implications. The FIG regime gives preferential treatment to income and capital gains, but inheritance tax works differently.

Inheritance tax looks at whether you’ve been a UK resident for at least 10 out of the previous 20 tax years – not your continuous non-residence for 10 years. This creates a tricky planning scenario where you might get FIG benefits but still face UK inheritance tax on worldwide assets.

Let’s look at someone who lived in the UK for 15 years, then moved abroad for exactly 10 years before returning. They would qualify for the FIG regime’s income tax benefits but still fall within the 10-out-of-20-years window for inheritance tax purposes. Their worldwide estate would still face UK inheritance tax at 40% above the threshold.

Further adjustments are coming, with pension exemptions leaving inheritance tax in April 2027. This affects everyone living in the UK, but returning expatriates with big pension funds abroad need to plan how these will be treated after death.

Smart planning needs a timeline that covers both the 10-consecutive-years rule (for FIG) and the 10-out-of-20-years rule (for inheritance tax). Sometimes, staying abroad longer might save you money when you add up all the tax implications.

Expatriates close to the 10-year mark should talk to professionals to learn about their tax position before making plans to return to the UK.

2. FIG Regime: A 4-Year Tax-Free Window

UK returnees have a fantastic chance, which starts April 6, 2025. The new Foreign Income and Gains (FIG) regime lets you keep most foreign income and gains free from UK tax for four years. This exemption works whether you bring the money to the UK or not. The new system gives you better benefits than the old remittance basis, especially if you’re coming back after ten years away.

What income qualifies

Not all foreign income and gains fall under the FIG regime. Your overseas income needs to fall into specific categories to qualify for this tax relief. HMRC guidance says you can include:

• Profits from trades done completely outside the UK
• Income from overseas property businesses
• Dividends from non-UK resident companies
• Interest from foreign sources (such as foreign bank accounts)
• Royalties and income from intellectual property
• Most foreign pension income
• Certain offshore income gains

Some income types don’t make the cut. Foreign employment income isn’t part of the standard FIG regime. You might get relief through the Overseas Workday Relief scheme instead. Most passive foreign income sources work with FIG, but active employment income follows different rules.

You’ll need to claim relief through your Self Assessment tax return. The positive news is you can pick and choose which foreign income sources to include. This lets you tailor the exemption to what works best for your situation.

How to structure your finances before returning

You need a solid plan for your finances before becoming a UK resident again. Start by listing which of your income sources qualify for FIG relief. The timing matters because the regime only works for income from April 6, 2025.

Here are some smart moves:

1. Accelerate gains before returning: Try to realise capital gains on foreign assets before becoming a UK resident.
2. Review investment structures: Check if your current investment setup works best under the new rules.
3. Plan income timing: Schedule qualifying income within your four-year window.
4. Separate qualifying from non-qualifying income: Good records will make your tax returns easier.

Claiming FIG means giving up some tax allowances. You will lose your personal allowance for Income Tax, the annual exempt amount for Capital Gains Tax, and possibly other benefits such as the Married Couples Allowance. Make sure FIG’s benefits outweigh these losses before you commit.

The four-year period is strict – you can’t extend or pause it. Even temporarily leaving the UK during this period will not halt the clock. Let’s say you become a UK resident in 2025-26, leave for 2026-27, then return in 2027-28. You’ll only receive FIG benefits for three tax years total (2025-26, 2027-28, and 2028-29).

What to avoid during the 4-year period

Watch out for these issues during your FIG period. If you create foreign income losses or capital losses while claiming FIG relief, you cannot deduct them. This rule applies regardless of what type of relief you’re claiming.

Timing your claim right is crucial. Please include it with your self-assessment tax return for each tax year. The deadline is January 31 in the second tax year after the one you’re claiming for. Missing this deadline could cost you your FIG benefits for that year.

Your foreign income still counts when calculating your adjusted net income. This might affect your means-tested benefits or tax charges. Many returnees don’t realise the consequences until it’s too late.

Plan your next steps as you near the end of your four-year window. After FIG ends, the UK will tax all your worldwide income and gains on the arising basis. Take time to review your investment structures and plan how to bring money back before this deadline.

Understanding these details helps you get the most from the FIG regime under the UK 2025/26 Tax Year Changes. Effective planning now helps avoid tax surprises later.

3. TRF: Bringing Money Back at Lower Tax Rates

The UK 2025/26 Tax Year Changes include a fantastic way to get tax savings through the Temporary Repatriation Facility (TRF). This limited window lets former remittance basis users bring their previously untaxed foreign money into the UK at substantially reduced tax rates. You’ll pay just 12% for the first two years and 15% in the third year.

Who benefits most from TRF

The TRF works best for people who:

• Live in the UK during the tax year they make the designation
• Have used the remittance basis for tax in at least one previous tax year
• Own ‘qualifying overseas capital’ from before 6 April 2025

This creates a tax advantage for returning residents with large foreign wealth. If you’ve lived abroad using the remittance basis, you might have substantial untaxed foreign income or gains. These would normally be taxed at rates up to 45% when brought to the UK.

Non-UK residents can’t use the TRF. Moving back to Britain during the TRF period (tax years 2025-26 through 2027-28) could save you a lot in taxes. People who become UK residents after 2028 will miss this chance completely.

How to plan repatriation of funds

You need to make a “designation election” in your Self Assessment tax return to employ the TRF. This process lets you choose which foreign income and gains get the reduced rate.

Your election timing matters:

• You’ll get the 12% rate for designations in 2025-26 or 2026-27
• The rate goes up to 15% for designations in 2027-28
• Make all designations by the tax return amendment deadline (31 January following the end of the tax year plus one year)

The TRF covers many qualifying assets. These include cash, investments, and property bought with pre-April 2025 foreign income and gains. You can get the reduced rate without bringing the funds to the UK, but you must identify and designate them.

Bank accounts and other liquid assets are easy to handle. Mixed funds with both foreign and UK-sourced money might need full account designation. Such an arrangement could mean paying tax on amounts that might otherwise be tax-free.

Here’s a real-world example: let’s say you sold overseas property in 2022-23 while using the remittance basis. You could designate those gains in your 2025-26 tax return and pay just 12% tax instead of 20-24%. After designation and tax payment, you can bring these funds to the UK without any extra charges.

TRF vs. regular income tax

The TRF’s financial benefits shine when compared to standard UK tax rates. Regular remitted foreign income faces your marginal rate—up to 45%. The TRF caps the tax rate at 12% or 15%.

TRF-designated amounts work differently from regular income. They:

• Keep your personal allowance intact
• Don’t use lower rate tax bands
• Leave your Capital Gains Tax annual exemption alone
• Don’t change Gift Aid donations
• Won’t create or increase payments on account

High foreign tax credits might make the TRF less attractive. Take Italian company shares with 26% tax paid – foreign tax credit relief against UK tax means no extra UK tax, making the TRF unnecessary.

The TRF shines for investments in low-tax places like the Isle of Man. The 12% rate beats the standard 24% capital gains tax rate by a mile.

This facility gives you amazing flexibility with foreign wealth that would otherwise stay overseas or face high tax rates upon repatriation. Smart timing of your UK return and strategic asset designation could save you thousands in taxes during this special period.

4. Inheritance Tax Planning for Returning Residents

The UK’s 2025/26 Tax Year brings the most important change to inheritance tax (IHT). The system now bases exposure on residence instead of domicile. This fundamental change creates opportunities and possible pitfalls for people coming back to Britain after living abroad.

How residency now defines liability

Your IHT position no longer depends on domicile in most cases, starting April 6, 2025. Your status as a “long-term resident” (LTR) determines whether you pay IHT on non-UK assets. You become an LTR if you lived in the UK for at least 10 out of the 20 tax years before a chargeable event like death or trust transfer.

These new rules mark a big departure from the past when British domicile followed you worldwide. Estate planning across borders becomes clearer and simpler under this new system.

Note that split years count fully toward UK residence for IHT purposes, even if you lived in the UK for just part of that tax year. This means any time spent in the UK adds to your LTR status.

People returning after staying outside the UK for 10 full tax years won’t immediately become LTRs. Their estate will only include UK-based assets for inheritance tax purposes at first. This creates a valuable window for planning.

Why offshore assets matter more than ever

Offshore assets play a crucial role in tax planning under these changes. Returning residents won’t pay UK IHT on non-UK assets until they become LTRs by living here for 10 out of the previous 20 tax years.

Trust rules have also changed. Non-UK property in trusts set up before UK domicile could stay outside UK IHT forever under old rules. Now, when a chargeable event occurs, non-UK assets added to trusts are subject to your LTR status.

The inheritance tax “tail” keeps you in the UK IHT system even after leaving. Your previous UK residence length determines this tail’s duration:

• If UK resident for 10-13 years: tail lasts 3 years
• If UK resident for 14 years: tail lasts 4 years
• If UK resident for 15 years: the trail lasts 5 years
• Maximum tail: 10 years (if UK resident for 20+ years)

Your worldwide assets might face UK inheritance tax years after you’ve left the country.

Planning for future generations

These changes make strategic planning vital to protect wealth across generations. Timing matters when returning to the UK. A return after 10 consecutive years abroad gives you time before worldwide assets face IHT.

UK pension funds will face inheritance tax from April 2027. More families will need to plan their estates early because of this additional change.

Trust holders should remember that ending LTR status might trigger an IHT exit charge of up to 6% on non-UK property. This happens when your IHT tail ends, not when you physically leave the UK.

Double taxation treaties between the UK and countries like France, Italy, and the US still apply and might override these new rules occasionally. Your specific situation might offer planning opportunities through these treaties.

The 2025-26 tax year changes need a fresh look at inheritance planning. Smart asset placement before returning to the UK could keep Britain IHT-free for up to 10 years.

5. Property and Capital Gains: Sell or Hold?

The UK’s capital gains tax rates have jumped sharply in the 2025/26 Tax Year Changes. Tax rates for assets other than residential property went up from 10% and 20% to 18% and 24%. These big tax hikes start on October 30, 2024. UK residents coming back home who own property and investments abroad need to act fast.

Tax implications of selling before return

You might save money by selling assets while you’re still a non-resident. Non-residents usually pay UK capital gains tax only on UK residential property and land. You won’t face UK tax on foreign assets you sell before returning, as long as you’ve lived abroad long enough.

The annual capital gains tax allowance has dropped to £3,000 for 2025/26. This is a huge cut from £12,300 in 2022/23. The timing of your asset sales matters more than ever because of this smaller allowance.

Business owners should note that Business Asset Disposal Relief rates will rise to 14% starting April 6, 2025, and will go up again to 18% from April 6, 2026. On top of that, the Investors’ Relief lifetime limit dropped to £1 million for qualifying sales made after October 30, 2024.

Selling assets before becoming a UK resident again could save you lots in taxes. The right choice depends on your situation and the taxes you might owe in your current country.

What changes once you’re UK resident again

Coming back to live in the UK means paying tax on your worldwide income and gains. If you’re accustomed to paying taxes solely in your current residence, this transformation can be particularly challenging.

UK residential property faces higher capital gains tax rates of 18% and 24%. You must report and pay any capital gains tax on UK residential property sales within 60 days after completion. Many returning residents miss these tight deadlines.

The new FIG regime we discussed earlier lets you avoid UK tax on qualifying foreign gains during the four-year window. This applies whether you bring the money to the UK or not. This creates a fantastic chance to plan when to sell your assets.

Individuals who previously utilised the remittance basis can reset their foreign capital assets to their market value as of April 5, 2017, provided they meet specific conditions. This reset could cut down future capital gains tax bills by a lot.

Using the temporary non-resident rules

Temporary non-residence rules are crucial for anyone coming back. These rules mean the UK might tax certain gains you made while living abroad if:

• You come back to the UK within five years of leaving
• You lived in the UK for at least four out of seven tax years before you left

These rules don’t cover all assets. You won’t pay tax on gains from assets you bought after becoming non-resident. But there are exceptions, like assets tied to your earlier UK residence.

To name just one example, see what happens with UK company shares. If you bought and sold them while living abroad, you won’t face tax when you return. But assets you owned before leaving would likely trigger tax bills.

The best decisions about property and investments come after weighing several factors. Check your assets’ locations, purchase dates, and tax rates in both countries, and when you plan to return to the UK.

6. National Insurance and Pensions: What to Do Now

National Insurance contributions are a vital yet often overlooked part of tax planning for UK residents coming back home. These payments determine your eligibility for UK benefits, especially your State Pension. The UK 2025/26 Tax Year Changes make it essential to understand your National Insurance obligations to avoid pension shortfalls in the future.

How to maintain your state pension eligibility

You need at least 10 qualifying years on your National Insurance record to get any UK State Pension. The full State Pension needs 35 qualifying years. Your pension entitlement could take a hit if you have gaps in contributions from your time abroad.

You can protect your benefit entitlement by making voluntary National Insurance contributions while you’re overseas. This keeps your National Insurance record intact and prevents your State Pension from being reduced.

Currently, you can pay voluntary contributions to fill record gaps if you’ve lived in the UK for three straight years or paid National Insurance for at least three years. You might also qualify if you’ve lived for three consecutive years in an EU country, Gibraltar, Iceland, Liechtenstein, Norway, Switzerland, or Turkey.

Class 2 vs Class 3 contributions

Expatriates can choose between two types of voluntary contributions:

Class 2 Contributions:

• Cost: £3.50 per week (2025-26 tax year)
• Eligibility: You must have worked abroad and been hired or self-employed right before leaving the UK
• Benefits: These count toward State Pension, Employment and Support Allowance, and bereavement benefits

Class 3 Contributions:

• Cost: £17.75 per week (2025-26 tax year)
• Eligibility: Anyone with gaps in their contribution record can apply
• Benefits: These mainly help with State Pension entitlement

Class 2 contributions give you better value if you qualify. They cost much less and offer more complete benefits.

Using the CF83 form

The CF83 form (“Application to Pay Voluntary National Insurance Contributions When Abroad”) helps you maintain your contributions while overseas. This document lets you apply for voluntary contributions and choose between Class 2 or Class 3.

Your CF83 form needs:

• Your National Insurance number
• Date of birth
• UK address (if applicable)
• Current overseas address
• Employment details before leaving the UK
• Current employment status abroad

Please kindly send your completed form to HM Revenue & Customs by post. The process usually takes 8–12 weeks, but it might stretch to 16 weeks during busy times.

We recommend promptly addressing any National Insurance gaps upon your return home. Each year you miss could lower your pension entitlement.

7. Avoiding Pitfalls with the Statutory Residence Test

The UK 2025/26 Tax Year Changes make it vital to understand your residency status under the Statutory Residence Test (SRT). Any errors could result in unexpected tax bills and lost opportunities.

How to determine your tax status

The SRT consists of three sequential tests. The automatic overseas tests show you are non-resident if you spend less than 16 days in the UK with previous residency. This limitation extends to 46 days if you were a non-resident for the three previous years. The automatic UK tests confirm your residency if you stay 183+ days in the UK, own your only home there, or work full-time in the country. The sufficient ties test then reviews your connections among days spent in the UK.

Why split-year treatment may not matter under FIG

Your arrival in the mid-UK tax year might result in split-year treatment that divides the year between UK and non-UK portions. These split years count as full years of UK residence for FIG purposes. This means your actual FIG regime period could be shorter than four complete years.

When to notify HMRC

You should contact HMRC about your status change upon return. The Self Assessment helpline at 0300 200 3310 can help. Yes, it is important to track your UK time before permanent return. Your residency could start after just 16 days if you were a non-resident for less than three years.

Conclusion

These seven critical tax changes matter to anyone who plans to return to the UK during or after the 2025/26 tax year. The move from domicile-based to residence-based taxation changes how the UK will treat your worldwide wealth.

Your tax advantages now depend on whether you’re a long-term or short-term non-resident. People who stay non-resident for more than 10 years benefit a lot from the FIG regime’s four-year tax-free window and lower rates. The Temporary Repatriation Facility is a chance to bring your previously untaxed money back to the UK at just 12–15%.

The new residence-based rules create risks and planning windows that need attention for inheritance tax planning. Smart timing of foreign property sales before your return could save you thousands in capital gains tax.

National Insurance contributions might not seem important right now, but keeping them up while abroad protects your state pension benefits later. Getting the Statutory Residence Test right determines which tax rules apply and when.

These changes bring both chances and risks. Planning ahead helps you optimise your tax situation and avoid surprise liabilities. Some aspects have clear advantages – especially when you meet the 10-year non-residence requirement – while others need careful consideration and expert advice.

The 2025/26 reforms have altered the map for returning British expatriates. Your actions now determine whether you will benefit from these changes or become entangled in their complexities when you return home.