Will your employees still qualify for overseas tax relief?

Non-UK domiciled employees moving to the UK have long benefited from a favourable tax regime that exempts them from UK taxes on overseas workdays for the first three tax years, as long as they did not remit the remuneration relating to those workdays to the UK.

From 6 April 2025, tax relief on overseas workdays has completely changed. The non-UK domiciled status has been abolished and UK tax residents are all now taxable on their worldwide income and gains.

Making the UK attractive to new overseas talent

In order to attract talent to the UK despite this change, there is also a new regime for foreign income and gains earned by qualifying new residents. As long as the individual has not been a UK tax resident in the 10 tax years prior to their arrival, they will be classed as a qualifying new resident for the first four tax years of residence.

Qualifying individuals can elect for some or all of their qualifying overseas income or gains to be excluded from UK tax. When making the election, the individual is still required to report all of their global income and gains on a UK tax return. There are constraints to the relief however, including restrictions on pension contributions and the loss of the tax-free personal allowances.

Foreign employment income

The main relief for foreign income and gains does not apply to employment income. Instead, there is a supplemental regime that is similar but has additional constraints on the amount of relief that can be claimed.

Where an individual has foreign employment (ie employment performed partly or wholly outside the UK), relief can be claimed for any overseas workdays during the tax year. But there is no need to pay and keep the remuneration outside the UK, meaning that the complicated banking structures of old are no longer needed.

As with the main relief, foreign employment income must be reported on the UK tax return and a specific claim made. In addition to the restrictions such as the constraints on pension contributions and tax-free personal allowance, the relief is also restricted to the lower of 30% of the individual’s foreign employment income or £300,000.

Trailing income relating to earlier years

It is not uncommon for employees to receive remuneration that relates to an earlier period (eg bonuses, employment related securities). Relief for overseas workdays is still available for these, but a claim must have been made in the relevant period. For example, if a bonus paid in June 2026 related to the year ended 31 March 2026, the individual must have made a claim for overseas workday relief in 2025/26. If a claim had not been made, then relief for overseas workdays on the bonus cannot be made.

An added complication is that the relief restriction for each tax year applies to trailing income arising in a future year. In the example above, the bonus paid in June 2026 would need to take into account what has already been claimed in 2025/26.

Transitional rules

Employees who are already in the UK at 6 April 2025 may still qualify for the new relief if they met the 10 year non-residence condition at the time of their original arrival. However, care must be taken in respect of trailing income that relates to the period before 6 April 2025. This remuneration will be subject to the old rules and must still be paid and retained offshore in order to qualify for relief. There is no cap on the amount of overseas workdays relief that can be claimed under the old rules.

What are the next steps for employees to qualify?

One of the key considerations for an employee coming to the UK will be how they are taxed and if they will be worse off under the UK system. It will be imperative that they know what their tax position and obligations will be before they come to the UK to avoid any nasty shocks. Where the employer equalises tax for the employee, any relief available for overseas workdays will greatly reduce the amount of tax payable.

Get in touch with Ian Jones, Joanne Webber or your usual RSM contact if you would like to discuss any tax and social security matters for globally mobile employees.