If you are domiciled outside the UK and you arrived in the UK within the last three years you may be entitled to claim UK tax relief for any work undertaken outside the UK. This is described as Overseas Workday Relief (OWR).
Claiming OWR is a variation on the old “resident but not ordinarily UK residence” status. However, there is no longer a requirement for an intention to stay for less than 3 years, provided you met the criteria you can claim the relief!
The criteria that must be met are as follows:
- You must be domiciled outside the UK
- You must claim the remittance basis of taxation
- Have three consecutive full years of non-residence prior to the year of arrival in the UK
Provided you meet these conditions OWR is available to reduce taxable pay for the first three tax years from arrival. There is no limit to the number of three-year periods in which OWR can be claimed as long as there are three consecutive years of non-residence prior to you coming, or returning, to the UK.
It is also important to note that deferred income which relates to a period in which OWR was claimed will also qualify for relief. An example of this would be a bonus relating to a previous year’s performance or deferred share awards that relate to the OWR period but are received after the end of the period.
You are born with a domicile of origin which you take from your parents. Your domicile follows your parents until you reach the age of 18 when you can have an independent State of domicile (domicile of choice). You can then establish a domicile of choice, this requires you to cut all ties with your former State of domicile and make ties with the new State with a view to making it your permanent home.
If you are non-UK domiciled you can claim the remittance basis. This allows non-UK income and gains to avoid UK tax if they are not paid in or remitted into the UK. Claiming the remittance basis comes at a cost, you forfeit the tax free personal allowance and there is an annual £30,000 charge if you have been UK resident in at least 7 of the previous 9 years. This increases to £60,000 if you have been resident for at least 12 of the previous 14 years.
If you wish to remit money to the UK from an offshore account which contains earnings relating to OWR, it is important to know exactly what income is being remitted (to avoid an unnecessary tax charge), especially where the account contains income that has already been taxed in the UK and can be remitted tax free.
Where the account does contain taxed income and untaxed OWR income there are strict rules that apply when considering transfers from the account into the UK. These are complex, requiring an analysis of each payment made from the account and should be avoided if possible. However, HMRC have published legislation (s809 ITA 2007, replacing SP1/09 from 6 April 2013). which states that accounts which satisfy certain conditions (Qualifying accounts) can remit funds without the need to analyse each individual transaction. Accounts that satisfy conditions will qualify for the “special mixed fund rules”.
An offshore account will be considered qualifying if it contains:
- Income from a single employment. (The account may be joint as long as the spouse does not work)
- Interest arising on the account
- Gains arising from foreign exchange transactions in respect of funds in the account
- Gains arising on employee share scheme related transactions
- Proceeds from employee share scheme related transactions in respect of amounts paid by the employee acquiring shares.
The qualified account must be nominated on the Tax Return and must contain less than £10 immediately before the “qualifying date”. This date is the first date on which funds are paid into the account relating to earnings in the tax year during which OWR is claimed.
If you believe that you may be entitled to claim overseas workday relief or you wish to further discuss any of the above information please do not hesitate to contact us and we can assist in making the relevant claims for relief.