Overseas Workday Relief:  A valuable relief to reduce UK tax on employment income

Under FIG and from 06 April 2025, an individual moving to the UK, and who has not been a UK resident in each of the ten years prior to their arrival in the UK, will not be liable to UK tax on their overseas income and gains for the first four years of UK residence.

In relation to employment income, the default position is that an individual who is resident in the UK and holds an employment in the UK, is liable to UK tax on the earnings of that employment. The charge to taxation will relate to the employment duties performed in the UK and outside of the UK.

If, however, the individual qualifies for FIG, they can make a claim for OWR whereby the individual is liable to UK tax only on the proportion of earnings relating to employment duties performed in the UK. The proportion of earnings that relate to work duties performed outside of the UK will not be liable to UK tax. Relief under OWR can be claimed for a period of four years. Please see the examples below.

Example 1

Sophie arrives in the UK for the first time on 06 April 2025 (2025/26 UK tax year), therefore qualifying for FIG, and where she takes up a new job paying GBP 300,000 per year.

Of her employment duties, she is required to perform 60% of these in the UK and 40% outside of the UK. Under OWR, she is able to avoid a UK tax charge on 40% of her salary as 40% of the duties are performed outside of the UK. Therefore, an amount of GBP 120,000 (GBP 300,000 x 40%) is not liable to UK tax.

Under the revised OWR rules, there is a limit on the relief that can be claimed which is the lower of 30% of the overall employment income and GBP 300,000.

Example 2

Using the same example as before except that now, the salary earned is GBP 500,000. In the absence of any restriction, the amount that would not be liable to UK tax is GBP 200,000 (GBP 500,000 x 40%). Consideration must however be given to the new restriction as follows:

GBP 300,000; or

GBP 500,000 X 30% = GBP 150,000

Therefore, the relief and the amount not liable to UK tax is limited to GBP 150,000.

Whilst the above examples briefly outline OWR and its benefits, there are other issues to consider which are too detailed to cover in this article. These issues include the calculation of the relevant qualifying employment income for OWR, transitional rules to allow OWR to be claimed for individuals who arrived in the UK in a year prior to 06 April 2025, and consideration of other planning techniques to be used in conjunction with OWR.

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Arvinder Matharu is a Partner in the tax department of Prager Metis. He focuses on providing tax consultancy on a range of issues to include trusts and estates, inheritance tax planning, capital gains tax, remittance basis and non-domiciled planning, residency planning, advising on R&D tax credits, review of tax minimisation strategies for US nationals living in the UK. Arvinder prides himself on explaining complex tax advice in a manner that the client can understand and take action from.