RFIG43000 - FIG regime: Effects of claim
Source: gov.uk (2025-12-10)


Overview (#Overview)

Allowances, reductions and reliefs (#Allowances, reductions and reliefs)

Capital gains AEA and capital losses (#Capital gains AEA and capital losses)

Trading and property income losses (#Trading and property income losses)

Relief for loan costs – overseas property business (#Relief for loan costs – overseas property business)

Contributions to registered pension schemes (#Contributions to registered pension schemes)

Overview

An individual who is a ‘qualifying new resident’ and meets the eligibility criteria set out at RFIG44000 (https://www.gov.uk/hmrc-internal-manuals/residence-and-fig-regime-manual/rfig44000) must decide whether they want to use the new FIG regime to make a claim for relief on their foreign income, or foreign gains, or both, in their first 4 years of UK residence. They may also be able to make an election for new Overseas Workday Relief (OWR) (see link to EIM43550 (https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim43550)).

However, making either one of these claims, or an OWR election, will impact the various allowances and reliefs that an individual may be entitled to.

An individual who is resident under the statutory residence test (SRT) is resident in the UK for the purpose of Article 4(1) of Double Taxation Agreements (DTAs). A UK resident individual eligible to make claim for relief under the FIG regime may need to consider DTAs, particularly regarding their treaty residence position. This should be done in the usual way. A claim for relief under the FIG regime will not change this determination. For further guidance on DTAs see INTM150000 (https://www.gov.uk/hmrc-internal-manuals/international-manual/intm150000).

Allowances, reductions and reliefs

Sections 845E and 845G ITTOIA 2005

An individual who makes a foreign income claim, a foreign gain claim or an OWR election for a tax year will lose any entitlement they may have otherwise had for that tax year to the following:
- personal allowance
- blind person’s allowance
- tax reductions for married couples and civil partners
- transferable tax allowance for married couples and civil partners
- relief in relation to payments for life insurance etc – (see sections 457 and 458 ITA 2007)
These allowances will be lost regardless of whether a claim or election is made for only foreign income, only foreign gains, or only OWR.

Foreign income relief will be disregarded for the purposes of determining an individual’s adjusted net income (ANI) for the qualifying year, which is used to calculate entitlements to reliefs including tax-free childcare. ANI is to be determined as if the relief allowed by the claim had not been deducted in calculating the individual’s net income for the tax year. This means that all of an individual’s foreign income will be taken into account for the purpose of calculating entitlements to reliefs and the High Income Child Benefit Charge (HICBC). For the impact of an OWR election in relation to determining ANI, see EIM43580 (https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim43580).

Capital gains AEA and capital losses

Sections 1K(6)(b) and 16(4) TCGA 1992

An individual who makes a foreign income claim, a foreign gain claim or an OWR election for a tax year will lose entitlement to the following:
- the CGT annual exempt amount for the tax year in relation to which the claim is made (see section 1K(6)(b) TCGA 1992)
- foreign qualifying losses that accrue to the individual in the tax year in relation to which the claim is made, which cease to be allowable losses (see section 16(4) TCGA 1992)
The loss of the AEA and use of foreign losses will apply regardless of whether a claim or election is made for only foreign income, only foreign gains, or only OWR.

The relief on foreign capital gains is applied before deducting any allowable losses. As a result, losses arising in respect of the in-year disposal of UK assets as well as unused losses from years outside of a relevant claim are unaffected. These losses are utilised against UK gains in the year or carried forward to future years in the normal way.

Trading and property income losses

Section 845C ITTOIA 2005

An individual who carries on a trade, profession, vocation or property business wholly outside the UK and makes a foreign income claim, a foreign gain claim or an OWR election for a tax year is not entitled to loss relief in respect of those trading or property income losses from the year of claim.

Relief for those losses is not available either in the year in which the claim is made or in any other tax year. This only applies if the profits (if there were any) of that trade, profession, vocation or property business would be qualifying foreign income. This means that the losses cannot be carried forwards to be deducted from future profits.

The loss of the use of foreign trading and property income losses will apply regardless of whether a claim or election is made for only foreign income, only foreign gains, or only OWR.

An individual may have been entitled to carry forward foreign trading losses or property losses from the 2024-25 tax year or earlier, which can be deducted from future profits. Where an individual has profits from an overseas trade or property business in a year in which they are eligible to make a foreign income claim, any carried-forward losses available to them are deducted from the profits of the trade or property business before relief is given by the foreign income claim. This means that carried-forward losses may be used up even though a foreign income claim is made in respect of the profits – see sections 83(4) and 118(4) ITA 2007.

Example 1

Ayaan is a qualifying new resident in the 2025-26 tax year. Since becoming UK resident she has continued to operate a consultancy business and software development business that she established in her home country of Germany. Both trades are carried on wholly outside the UK and trade profits would therefore be qualifying foreign income. Ayaan has also set up a financial planning business in the UK.

In 2026-27 Ayaan makes a taxable profit of £200,000 in her consultancy business, a loss of £25,000 in her software development business and a taxable profit of £50,000 in her UK financial planning business.

Ayaan decides to make a foreign income claim for all of the profits from the consultancy business. In doing this, Ayaan is not entitled to set her loss of £25,000 against her profits of £200,000 when she makes a claim in her tax return for 2026-27. Ayaan is also not entitled to set her £25,000 loss against the profits of her UK financial planning business. Therefore, Ayaan will need to make a claim in respect of her overseas trade profits in the amount of £200,000 and she will need to pay tax at the usual rates on her £50,000 of UK trade profits.

Furthermore, she will not be able to offset the £25,000 loss in any future years, even if she has future profits from the software development business.

Example 2

Oleg is a qualifying new resident in the 2025-26 tax year. Since becoming UK resident he has continued to run an interior decorating business in his home country of Hungary. In 2024-25 Oleg’s business made a loss of £50,000, and he could not use the loss in any other way, so he is able to carry forward the £50,000 loss to deduct from future profits of his overseas business.

The business is more successful in 2025-26 and Oleg makes profits of £10,000. Oleg also receives a foreign dividend of £70,000 and interest of £5,000 on his Hungarian bank account during 2025-26, so he decides to make a foreign income claim in respect of all his foreign income, totalling £85,000.

Although Oleg included the £10,000 of profits in his foreign income claim for 2025-26, any carried forward losses are deducted before relief is given under the foreign income claim. Therefore, Oleg’s loss carried forwards to 2026-27 has been reduced to £40,000, because £10,000 of the carried-forward loss relief has been used against the £10,000 of profits.

Relief for loan costs – overseas property business

Section 845D ITTOIA 2005

An individual who makes a foreign income claim, a foreign gain claim or an OWR election for a tax year will lose their entitlement to relief under section 274A ITTOIA 2005 for that tax year. This section applies where an individual has relevant interest and finance costs in relation to a dwelling-related loan for which a deduction may be available – see PIM2054 (https://www.gov.uk/hmrc-internal-manuals/property-income-manual/pim2054).

For the purposes of section 274A, the individual’s brought-forward amount for the following tax year in respect of the overseas property business is nil.

This entitlement to relief will be lost regardless of whether a claim or election is made for only foreign income, only foreign gains, or only OWR.

Contributions to registered pension schemes

Section 845F ITTOIA 2005

An individual who makes a foreign income claim for a tax year may be limited in the amount of tax relief that they are entitled to on contributions to a registered pension scheme under section 188 FA 2004 (see PTM044100 (https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm044100)). If the maximum amount of relief on contributions to which the individual is entitled for the tax year under section 188 is higher than the ‘basic amount’, currently £3,600, then the relief they are entitled to is reduced by the lower of:
- the amount of relief claimed under the FIG regime in respect of ‘relevant UK earnings’ within the meaning of section 189(2) FA 2004 (see ‘earnings that attract tax relief’ at PTM044100 (https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm044100))
- the amount that would reduce the maximum amount of relief to the basic amount
This means that relief on contributions is reduced by reference to the amount of ‘relevant UK earnings’ for which a foreign income claim has been made, but it is not reduced below the basic amount.

For the impact of making an OWR election on contributions to registered pension schemes, see EIM43580 (https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim43580).