New residence based regime for foreign income and gains

From April 2024, the UK tax system underwent a significant change that affects anyone with income or gains from overseas sources. The introduction of the new Residence-Based Regime (RBR) has replaced the long-established Split Year Treatment and marks a fundamental shift in how foreign income is taxed for UK residents. Whether you’re a freelancer working abroad, an investor with overseas property, or someone receiving foreign pension income, understanding this change is essential for your tax planning and compliance.

What Changed and Why

For decades, UK residents have been subject to the Remittance Basis of Assessment, which meant foreign income was only taxable in the UK if it was brought into (remitted to) the country. This system worked well for expatriates and those with significant overseas assets, but it created complexity and potential loopholes. The new Residence-Based Regime simplifies this by moving toward a more straightforward approach: your tax residence determines your tax obligations, not where your money is spent.

HMRC introduced this change to modernise the tax code and bring the UK into alignment with international tax standards. From 6 April 2024, the rules apply to individuals who are classified as UK residents for tax purposes under the statutory residence test (SRT). The key threshold is clear: if you’re a UK resident, foreign income and gains are generally taxable in the UK regardless of whether you bring that money into the country.

Who Is Affected

The new regime applies broadly, but impact varies significantly depending on your circumstances. If you’ve been claiming Split Year Treatment or relying on the Remittance Basis, you’ll need to reassess your position. Non-residents (those who don’t meet the SRT criteria) are unaffected, as they continue to pay UK tax only on UK-sourced income.

The change particularly affects:

• UK residents with foreign employment income — now fully taxable in the UK from day one
• Buy-to-let investors with overseas property — rental income is now taxable whether remitted or not
• Those receiving foreign pensions — these are now treated as foreign income under the new rules
• People with overseas investments — chargeable gains on foreign assets become UK taxable

However, relief is available. The UK’s extensive double taxation treaty network means you can claim foreign tax credits to avoid paying tax twice on the same income. Additionally, certain categories remain outside the new regime, including specific remittance basis users and those with particular historical claims.

Practical Tax Planning Considerations

Understanding your position under the new RBR requires honest assessment of your residence status. The SRT has three categories: automatically resident, automatically non-resident, and those requiring case-by-case analysis. Working through this correctly is crucial—getting it wrong could mean unexpected tax bills or, conversely, missing relief you’re entitled to.

For those newly affected, immediate steps include:

Review foreign income sources — gather details of all overseas earnings, investments, and assets. This forms the foundation of your tax return.

Check double taxation treaties — if you’re paying foreign tax on income now subject to UK tax, verify the treaty provisions with that country. Many treaties prevent double taxation or allow credits against UK tax due.

Consider timing and remittances — whilst the Remittance Basis no longer shelters foreign income, careful planning around when you bring money into the UK can still influence your cash flow and tax planning position.

Update Self Assessment records — if you’ve previously filed returns claiming Remittance Basis treatment, ensure HMRC knows you’re now operating under the new RBR. This prevents complications in future years.

From a practical standpoint, the new regime is more straightforward once understood, but it requires clearer record-keeping. You’ll need detailed documentation of all foreign income sources and supporting evidence of foreign taxes paid, particularly for claiming relief.

Looking Ahead

The transition to the Residence-Based Regime represents one of the most significant changes to UK taxation of foreign income in recent years. Whilst the system is simpler in principle—resident = taxable—the application requires careful consideration of your specific circumstances, particularly around double taxation treaties and relief mechanisms.

Tax year 2024/25 is now well underway, and if you haven’t reviewed your position under the new rules, now is the time. Mistakes made early can compound over multiple years, and HMRC is actively monitoring compliance in this area.

For tailored advice on how the Residence-Based Regime affects your personal circumstances, income planning, and tax obligations, contact Severn Accounting — we’re here to help.