The Finance Act 2025 fundamentally restructured how internationally mobile individuals are taxed in the UK. By abolishing the remittance basis, the government established the arising basis of taxation as the default mechanism for almost all UK residents. For the 2026/27 tax year, understanding the nuances of the arising basis—from statutory definitions to case law interpretations and new transitional reliefs—is essential for tax practitioners.
Defining “Arising” in UK Tax Law
In UK tax law, the arising basis means that an individual is subject to tax on their worldwide income and gains in the tax year that those amounts are generated or become accessible, regardless of whether they are remitted to the UK.
Case law provides critical parameters for when income “arises”. In Rao Mohammed Hassan Khan v The Commissioners for HMRC, the First-tier Tribunal clarified that income arises when it inures for the taxpayer’s benefit. This standard is met when income is paid, when the taxpayer can immediately access it, or when the income is applied to discharge the taxpayer’s liabilities.
The tribunal noted the breadth of this concept:
“[T]he “swelling of a person’s assets”, even where the person had no immediate right of access to the income. In view of the wide meaning given to “arising”, and the fact that it is a term with which practitioners are familiar, the word has been retained.”
For property businesses, the concept of arising intersects with accounting methods. If gross property income exceeds £150,000, or if the taxpayer elects it, profits are calculated on an accruals (GAAP) basis. This means rent is taxed as it is earned over the tax year, even if the tenant has not yet paid it.
The 2026/27 Rates and Thresholds
When applying the arising basis of taxation for the 2026/27 tax year, the income tax bandings and frozen allowances form the baseline calculation. The Personal Allowance remains frozen at £12,570, and the basic rate limit sits at £37,700, establishing a higher rate threshold of £50,270.
| Tax Band | Taxable Income Range | Income Tax Rate | Dividend Rate |
|---|---|---|---|
| Basic Rate | £12,571 to £50,270 | 20% | 10.75% |
| Higher Rate | £50,271 to £125,140 | 40% | 35.75% |
| Additional Rate | Over £125,140 | 45% | 39.35% |
The Finance Act 2026 confirms these main rates, while dividend rates reflect the increases that took effect from April 2026.
The Abolition of the Remittance Basis
Before 6 April 2025, non-UK domiciled individuals could elect to shelter their foreign income and gains from the arising basis by using the remittance basis. The Finance Act 2025 dismantled this framework, mandating that the remittance basis is no longer available for the tax year 2025-26 or subsequent years.
Consequently, former non-domiciled individuals who have been resident in the UK for more than four years are now fully subject to the arising basis of taxation on their worldwide income and gains.
To soften the transition, the government introduced the Temporary Repatriation Facility (TRF). For the 2026/27 tax year, former remittance basis users can designate and remit pre-April 2025 foreign income and gains (FIG) at a reduced rate of 12%. If these historical funds are remitted outside of the TRF, they remain subject to the historical remittance basis tax charges.
Exceptions to the Arising Basis
While the arising basis of taxation is now nearly universal for UK residents, key statutory exceptions exist.
1. The 4-Year FIG Regime
The primary carve-out to the arising basis is the 4-year Foreign Income and Gains (FIG) regime. New arrivals to the UK receive 100% relief from UK tax on their foreign income and gains for their first four years of tax residence. To qualify, the individual must have been non-UK resident for 10 consecutive tax years immediately prior to their arrival.
This regime overrides standard anti-avoidance provisions. For example, under the settlements legislation, income is typically deemed to belong to the settlor and taxed as it arises. However, if the settlor qualifies for the 4-year FIG regime, they can claim relief on this deemed foreign income, shielding it from the arising basis.
2. Statutory Residence Test: Exceptional Circumstances
Taxpayers can avoid being taxed on an arising basis on their worldwide income if they remain non-UK resident. Under the Statutory Residence Test (SRT), a taxpayer can exclude up to 60 days spent in the UK if their presence is due to “exceptional circumstances” beyond their control that prevent them from leaving. Acceptable circumstances include sudden or life-threatening illness or national emergencies.
Consider reviewing the interaction between the arising basis of taxation and the 2024/25 basis period reform rules to ensure trading profits are correctly time-apportioned to the tax year.
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