Is this the end of tax-free international home leave?

There has been a long-standing tax exemption that non-domiciled employees coming to the UK could have home leave trips paid or reimbursed by their employer tax-free for up to five years. The number of home leave trips during the five years was unlimited, provided the trip was between the country they normally resided in and the UK. A similar exemption related to home leave trips for the employee’s spouse and minor children, although limited to two return trips per tax year.

Now that non-domicile status has been abolished, the rules on both forms of relief have changed. From 6 April 2025, home leave trips became taxable for some employees who had previously been able to claim tax relief.

The new international home leave rules

Now, non-UK residents or qualifying new residents are the only employees who can claim tax relief for home leave trips paid or reimbursed by an employer. The relief continues for the first five years from the qualifying date of arrival, but there are nuances that mean the actual period may be much shorter.

Under the new rules, an individual will be a qualifying new resident for the first four tax years of residence in the UK provided that they were non-UK resident in the 10 tax years before. Unlike the old rules, this could include employees previously considered to be UK-domiciled.

What does this look like in practice?

Example 1: the qualifying new resident

The employee would be able to claim relief for the first four tax years of residence. If they are a tax resident in the fifth tax year, home leave trips would be taxable benefits in kind for that year.

Example 2: the returning employee

A non-domiciled employee who came to work in the UK on 1 January 2025 would previously have had a five-year period ending on 31 December 2029. However, if they were a UK resident in the 10 tax years leading up to 1 January 2025, they would not be a qualifying new resident. Any home leave trips paid or reimbursed after 6 April 2025 while they are UK tax resident will now be taxable benefits. 

Example 3: the employee currently working in the UK

Under the old rules, an individual who arrived on 1 December 2021 would have qualified for relief up to 30 November 2026 under the old rules. Under the new rules, as long as they were non-resident in the preceding 10 tax years, they would be a qualifying new resident for the four tax years from 2021/22 to 2024/25. However, this status would end from 6 April 2025 onwards, and any home leave trips would be taxable. 

Employees who have arrived after 5 April 2022 may be able to claim relief for the remainder of their first four UK tax years of residence for tax years starting after 5 April 2025.

Example 4: the non-resident employee

The rules for non-resident employees remain the same as before, with home leave trips classed as non-taxable for the first five years from the qualifying date of arrival. Where the employee has not been in the UK for any purpose in a two-year period, or was non-resident for the two preceding tax years, they will have a new qualifying date of arrival for each year these conditions are met. This can mean the relief is available indefinitely, as long as the rules don’t change.

What employers need to do following the new rules

Relief for home leave has not ended but a significant number of existing employees will find they no longer qualify. Employers have two options. They can ask employees questions to determine their residence status, or they can treat home leave trips as taxable benefits from the outset, leaving it to the employee to claim tax relief from HMRC. If the company takes the latter route, it will need to pay employers’ national insurance contributions (NIC) on the benefits in kind. 

For a discussion around the impact of these changes, please contact Ian Jones or Joanne Webber.