OWR is dead. Long Live OWR

As I said in my earlier post “The devil will be in the detail”. Now we have the technical note on the non domicile tax changes we are beginning to see the detail. One point to look out for is the following:

“The Statutory Residence Test will be used to determine tax residence for any one tax year. Treaty residence or non-residence and split years will be ignored”.??

Under the statutory residence test you are either resident or non resident for the tax year. In a split year an individual is taxed during the overseas period as if the individual was non resident but the individual is technically resident during that period.

Non UK Domicile employees who claim the remittance basis of taxation currently qualify for Overseas Workday Relief (OWR) for the tax year of their arrival and the following two tax years. The employees also must have been non resident for 3 years prior to the first year of UK tax residence.? When these conditions are met the earnings for overseas duties of the employees are not taxable unless the income is remitted to the UK. The employees to maximise the relief are encouraged to keep the earnings outside of the UK.

The new regime starting from 6 April 2025 is different. The technical note explains that:

“From 6 April 2025, the current remittance basis of taxation will be abolished for UK resident non-domiciled individuals. This will be replaced from 6 April 2025 with a new 4-year foreign income and gains (FIG) regime for individuals who become UK tax resident after a period of 10 tax years of non-UK residence. Qualifying individuals will not pay tax on?FIG?arising in the first 4 tax years after becoming UK tax resident and will be able to bring these funds to the UK free from any additional charges”.

Note the requirement for a period of 10 years of tax non residence before you can qualify for the regime again. This compares with the previous 3 year period. The advantage though is that the employee will not have to keep earnings outside the UK to escape taxation. Although the new regime is for 4 years, OWR will only be available for 3 years. ?The technical note explaining that:

“Relief will continue to be available for employees who opt to use the new 4-year?FIG?regime. The new Overseas Workday Relief (OWR) will be like that currently available, providing relief on earnings for employment duties performed outside the UK. The new?OWR?will be available for the first 3 tax years of UK residence. Employees who are eligible for?OWR?in 2023-24 for their first year since returning to the UK should still be able to claim?OWR?for the full three years. However, those re-entering from 2025-26 will not be able to claim?OWR, if they are not eligible for the?FIG?regime.?

The new?OWR?will provide relief from income tax whether or not these earnings are brought to the UK. As under the current rules, the new?OWR?will not provide relief from National Insurance contributions (NICs), so any NICs liabilities on these earnings will be determined as usual”.

In practice many employees who qualify and who will qualify for the new OWR will have a certificate of coverage and continue to pay social security in the home country. Others will be exempt from National Insurance for the first 52 weeks in the UK.

The ending of the requirement to not remit the earnings to the UK to qualify for OWR will greatly simplify the administration for the employee, agents and HMRC. It should also benefit the UK economy as the earnings can be spent in the UK.

Employees will still need to keep records of their UK and non UK workdays. We can expect this record keeping to continue to be a focus of HMRC enquiries in to the Self Assessment Tax returns of employees who qualify for OWR.