Currently, UK residents who are domiciled in the UK are taxable on their worldwide employment earnings.
However, people domiciled outside of the UK, who are coming to work in the UK, can currently elect to apportion their employment earnings between work carried out in the UK and work carried out overseas.
They can then claim the remittance basis on the overseas earnings, so that these are not taxed in the UK so long as they do not bring these earnings into the UK. This broadly applies for their first three tax years in the UK and is known as overseas workday relief or OWR.
What's changing?
The current non-dom regime is being abolished from 6 April 2025. From this date, it will not be possible to claim via the remittance basis and the replacement regime is not tied to a person's domicile. It is proposed that the operation of OWR will therefore change in three main ways:
- Employees do not have to be non-UK domiciled in order to claim OWR Instead, they must have been non-UK resident for at least 10 tax years.
- Currently, if someone who has claimed the OWR leaves the UK for three tax years and then returns, then they can claim the relief for another three years. Under the new rules, this ‘tail' becomes 10 years before OWR can be claimed again.
- Crucially, qualifying employees can elect under the new regime to completely exempt their overseas earnings from tax for three years. This means that these earnings can be brought into the UK without a charge to UK tax. This is more generous that the current relief.
OWR applies only to income tax; it does not provide relief from National Insurance contributions. This will not change under the new regime.
Transitional rules
If a non-domiciled individual came to the UK in 2023/24 or 2024/25, it is proposed that they will still be able to claim OWR for three tax years even if they would not qualify under the new rules from 2025/26. It is not yet known whether they can continue to claim the remittance basis from 2025/26 on overseas earnings or whether these will instead be exempt from income tax.
What can I do?
The changes should be attractive for internationally mobile workers considering relocating to the UK. The new OWR is more generous in exempting overseas earnings and represents a significant simplification of the current rules.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.