EIM43580 - Globally mobile employees: Overseas Workday Relief: making a claim for relief
From 6 April 2025, in order to claim Overseas Workday Relief (‘OWR’) in relation to a qualifying year, a qualifying employee will first need to make an OWR election in their Self-Assessment (‘SA’) tax return for the qualifying year. Such an election is made under section 41M ITEPA 2003 and will allow the employee to make an OWR claim for relief on their qualifying employment income for that qualifying year, in any tax year in which it is charged to tax. An OWR claim for relief is made under section 41P ITEPA 2003.
Making an OWR election will mean the employee loses any entitlement to the Personal Allowance on income or Annual Exempt Allowance for capital gains in that qualifying year. However, the loss of these allowances will only relate to the year of the election, not any subsequent tax year for which a claim to relief is made on employment income which relates to the qualifying year for which the election was made.
Additionally, the employee will be unable to include any income on which relief is claimed in their relevant earnings for the purposes of determining the relief available for pension contributions made in that year.
Further, making an OWR election will prevent the employee from claiming any losses incurred from a relevant business carried on wholly outside the UK.
A relevant business means:
- a trade, profession or vocation, or
- a property business.
Example 1
Colette arrives in the UK for the first time on 6 April 2025 becoming UK resident for 2025-26, so that she is a qualifying new resident for that tax year. Colette works both within and outside the UK throughout 2025-26 and makes both an OWR election and an OWR claim for relief in her ITSA return for 2025-26. Colette loses her entitlement to the Personal Allowance for 2025-26.
In 2026-27, Colette performs all of her employment duties in the UK, but receives a bonus in respect of her duties performed in 2025-26, including those performed outside the UK. Colette does not make an OWR election for 2026-27 but may make an OWR claim for relief in her ITSA return for 2026-27 in respect of the element of the bonus which relates to duties performed outside the UK in 2025-26. The OWR claim for relief made for 2026-27 does not affect Colette’s entitlement to the personal allowance in 2026-27.
An OWR claim for relief must be made in the SA tax return for the tax year in which the relief is available. This means there must be qualifying foreign employment income charged to tax in that year.
If there is no qualifying foreign employment income charged to tax in the qualifying year, the employee can make an OWR election in their SA tax return for the qualifying year, but would be unable to make an OWR claim for relief in that return.
When qualifying foreign employment income is charged to tax in a later tax year, the election would then allow the employee to make an OWR claim for relief in the SA tax return for that later tax year.
Example 2
Enrico is a qualifying new resident in 2025-26, so is eligible to make an OWR election for 2025-26, and works both in and outside the UK in that year. However, all of his qualifying employment income for 2025-26 is deferred until 2026-27, so that 2026-27 is the first year in which qualifying employment income for 2025-26 is charged to tax. As a result, Enrico cannot make a claim for relief under the new OWR regime in his return for 2025-26. Instead, he wants to make an OWR claim for relief in his return for 2026-27.
In order to be able to a make an OWR claim for relief for 2026-27 or any later tax year that employment income earned in 2025-26 is charged to tax in, Enrico would need to have made an OWR election in his 2025-26 return, even though he could not claim any relief for that year, as that is the qualifying year to which the employment income relates.
This means that if Enrico chose not to make an OWR election in 2025-26, he would be unable to make an OWR claim for relief on the employment income which relates to that year in his return for 2026-27.
As part of making an OWR claim for relief, the employee must quantify the amount of relief being claimed.
From 6 April 2025 when an employee is UK resident in a tax year, all of their foreign employment income which is chargeable to UK income tax will be taxable in the same manner, and at the same time, as their UK employment income. Relief is now given at step 2 of the calculation of the employee’s income tax liability for a tax year under section 23 ITA 2007.
This means the relief claimed will be deducted from the total income charged to income tax for the qualifying year.
Example 3
Dominique is a qualifying new resident in 2025-26 and performs the duties of her employment both in and outside the UK. Dominique chooses to make an OWR election in her return for 2025-26 as well as an OWR claim for relief.
Dominque received employment income of £200,000 in 2025-26, all of which related to duties performed in 2025-26, including qualifying foreign employment of £25,000. Dominque also received UK bank interest of £100 and dividends from UK resident companies totalling £5,000. As such Dominque claimed relief under OWR of £25,000.
Step 1 of the calculation of tax liability at s.23 ITA 2007 is to identify the amounts of income charged to income tax for the year. Each amount is a “component” of total income, while the sum of these amounts is “total income”.
Employment income: £200,000
UK bank interest: £100
Dividends: £5,000
Total income: £205,100
Step 2 of the calculation of tax liability at s.23 ITA 2007 is to deduct from the components any reliefs that are due (and as described within s.24 ITA 2007).
Employment income: £200,000
Less OWR claimed: (£25,000)
Net Employment
income: £175,000
UK bank interest: £100
Dividends: £5,000
Net income: £180,100
At step 3 of the calculation deductions are made for allowances to which the taxpayer is entitled. Dominque has no entitlement to the personal allowance as she has made an OWR election for 2025-26 (notwithstanding that her income level would have reduced the personal allowance to zero in any case). The calculation of tax liability will then continue unchanged from the previous method from this point onwards.
Any relief under OWR will be disregarded for the purpose of determining an employee’s Adjusted Net Income (ANI) for the qualifying year, which is used to calculate entitlements to reliefs including tax free childcare. This means any of the employee’s foreign employment income relieved under OWR will be taken into account for these purposes.