We will need to consider whether your client is eligible for what is commonly referred to as Overseas Workday Relief (“OWR”). There have been changes to this area from 6 April 2025, which will be beneficial to your client.
The old rules
As a reminder, for years prior to 6 April 2025, OWR is available to an individual where:-
- They are not domiciled in the UK throughout the year
- They are taxed on the remittance basis
- the duties of their employment are carried out wholly or partly outside the UK, and that year is either:
- the first tax year immediately after 3 consecutive tax years they were not resident in the UK; or
- one of the next 2 tax years after such a year
Where these conditions are met, certain employment earnings relating to duties performed outside the UK (overseas workdays) are, to the extent that they are not remitted to the UK, not taxable in the UK. This is in accordance with the Income Tax (Earnings and Pensions) Act 2003 (‘ITEPA 2003’), section 26A. There are further relevant conditions; however, they are outside the scope of this article. Detailed guidance in respect of the old rules is provided by HMRC in their publication RDR4.
As a UK domiciled individual, your client would not have been eligible for OWR relief under the old rules.
FIG Regime
OWR has survived the recent changes in a revised form, alongside separate reliefs available for certain Foreign Income and Gains (“FIG”).
Where an employee is eligible for the new FIG regime for a tax year commencing after 5 April 2025 (“the qualifying year”), OWR will be available in respect of their relevant qualifying foreign employment income.
Eligibility for the new FIG regime is set out in the Income Tax (Trading and Other Income) Act 2005 (‘ITTOIA 2005’), section 845B. Broadly, an individual is eligible for the FIG regime where:-
- they are UK resident in the tax year
- they have not been UK resident for at least 10 consecutive tax years immediately before the tax year
- they are not a member of the House of Commons or House of Lords for any part of the tax year
For subsequent years an individual is a qualifying new resident for a tax year if they meet all of the following criteria:
- they are UK resident in the tax year
- the tax year is one of the 3 tax years immediately following the first tax year in which an individual was a qualifying new resident
- they are not a member of the House of Commons or House of Lords for any part of the tax year
Further guidance in respect of the FIG regime is provided by HMRC in their internal manuals starting from RFIG40000.
OWR under FIG regime
Based on your client’s facts, he will be eligible for OWR under the new FIG regime. This would not have been the case historically. However, as domicile has now been removed from being a relevant connecting factor, this creates opportunities for long-term expatiate individuals returning to the UK.
Relief will continue to be available for qualifying employees on qualifying employment income which relates to duties performed outside the UK. If this condition is met, the employee may elect for the earnings from duties performed overseas to be relieved from UK tax, but not from National Insurance Contributions. However, there are some key differences between the old and new OWR rules.
The legislation dealing with OWR for new residents on foreign employment income is contained in Chapter 5C of Part 2 of ITEPA 2003 as ‘foreign employment relief’.
Where an employee is eligible for the new ‘FIG’ regime for a tax year commencing after 5 April 2025 (“the qualifying year”), OWR will be available in respect of their relevant qualifying foreign employment income.
‘Qualifying foreign employment income’ includes:-
- qualifying foreign general earnings as defined within ITEPA 2003, section 41T (please see EIM43565)
- qualifying foreign third-party income as defined within ITEPA 2003, section 41U (please see EIM43570)
- qualifying foreign securities income as defined within ITEPA 2003, section 41V (Please see EIM43575)
These amounts are qualifying employment income to the extent they relate to a qualifying year and are from an employment the duties of which are performed wholly or partly outside the UK during the qualifying year. A ‘qualifying year’ is a year after 5 April 2025 in which the individual is eligible for the FIG regime.
Annual financial limit
Under the rules in place from 6 April 2025, OWR will be subject to an annual financial limit for each qualifying year. The quantum of relief that can be claimed on income which relates to a particular qualifying year will be the lower of:-
- 30% of the relevant qualifying employment income for the qualifying year arising out of the employment(s) to which the claim relates and which is charged to tax, or
- £300,000
Please see HMRC’s internal guidance at EIM43600 for further details in respect of the new limits.
Administration and claiming relief
In contrast to the old OWR rules, from 6 April 2025, an employee claiming OWR can choose whether they want to receive their qualifying foreign employment income in a UK or overseas bank account without this affecting the relief available. This is a welcome simplification removing a significant administrative burden that existed under the old rules.
From 6 April 2025, OWR will be available for up to four years, in line with the period that the FIG regime is available (this was previously 3 years). Again, this is a positive change.
Both an election and a claim for OWR must be made in the relevant income tax self-assessment tax return by the anniversary of 31 January following the end of the relevant tax year. For example, to make a claim for OWR for the 2025-26 tax year, the election and the claim must be made by 31 January 2028.
Further guidance in respect of the new OWR rules is providing by HMRC in their internal manuals starting at EIM43555.
