The newly elected Labour government in the United Kingdom has announced its intention to improve the country’s economic health by increasing state revenues. The United Kingdom, which reached a net debt level at around 100% of gross domestic product in 2023, has decided to tackle its debt situation with a major tax reform.

Until now, the UK has attracted wealthy foreigners to the world’s longest running tax relief scheme. For many years, the system allowed foreigners resident in the UK not to be taxed in the UK on income and capital gains earned abroad. However, stricter rules are coming from 6 April 2025, at the beginning of the new tax year.

Tax relief will now depend on tax residence under British law, not on tax domicile. Only foreign nationals, who have been resident in the UK for less than 4 years and whose permanent or official tax domicile remains abroad, will be eligible for tax relief. Britons who had not been tax resident in the UK for at least 10 years prior to their return to the UK will also be eligible.

The benefit is in the form of a 100% Foreign Income and Gains tax credit. However, the intention to use this relief must be announced in advance, including the specific income to which the taxpayer wishes to apply the relief. There is no lower limit to the reporting obligation, so every untaxed pound must be reported.

Foreign Employment Relief relating to working days outside the territory of the United Kingdom will now be subject to an annual limit of the lesser of GBP 300,000 or 30% of net qualifying earnings.

However, for both tax reliefs, relief comes in the form of the removal of the condition that income subject to tax relief (FIG or FER) must not be received by taxpayers into UK bank accounts. In addition to the above, the reform also simplifies the administration of the Pay As You Earn scheme for employers who no longer have to wait for approval of a claim to exclude from tax that part of their income that does not relate to working days spent in the UK and can claim the exemption straight away.

Tougher taxation is causing foreigners living temporarily in the UK to look for new homes. Relocation is an increasingly common solution in an era of increased information exchange between financial institutions and the absence of banking secrecy. Tax stability is becoming increasingly valuable to wealthier individuals and currently Italy or the United Arab Emirates are becoming more popular as a result.