EIM43600 - Globally mobile employees: Overseas Workday Relief: financial limit

From 6 April 2025 OWR will be subject to an annual financial limit for each qualifying year. The amount of relief that can be claimed on income which relates to a particular qualifying year will be the lower of:

  • 30% of the relevant qualifying employment income for the qualifying year arising out of the employment(s) to which the claim relates and which is charged to tax, or 
  • £300,000.

This financial limit is set out in section 41R ITEPA 2003. The financial limit may restrict the amount of relief an employee can claim for a tax year. 

The term “relevant qualifying employment income” means the amount of net taxable income for the tax year that reflects qualifying employment income. Per section 41R, this is determined applying the rules in section 41Q ITEPA 2003, but with the references to qualifying foreign employment income, qualifying foreign general earnings, qualifying foreign securities income and qualifying foreign third party income modified so that they work for qualifying employment income and not only qualifying foreign employment income.

The financial limit only takes into account qualifying employment income arising out of an employment performed both in and outside the UK. Where the employment is performed solely in the UK, you do not need to consider earnings arising from that UK employment when considering relevant net employment income arising in that qualifying year. 

To make an OWR claim for relief in relation to a qualifying year, an OWR election must be made for that qualifying year. Once the election has been made, a claim in relation to earnings for that qualifying year can be made for the tax year in which they are received and so charged to tax. 

The financial limit applies to each qualifying year individually. If the OWR claim is made for a subsequent tax year to the qualifying year for which the OWR election was made, the application of the limit in the subsequent tax year takes into account any relief claimed for that qualifying year in a tax return for a previous tax year.

While the financial limit which relates to a particular OWR election takes into account any qualifying employment income taxable in any previous tax year, it does not take into account any qualifying employment income taxable in a tax year prior to the year for which the OWR election was made (as shown in Example 3). 

As a claim for relief on qualifying employment income which is for a qualifying year can be made in the tax returns for more than one tax year, the financial limit applies on a cumulative basis across tax years. 

Example 1 

Armand is a qualifying new resident for both 2025-26 and 2026-27 and makes an OWR election for both tax years.

Armand receives earnings of £1m in 2025-26, which were for that tax year, £400,000 of which was qualifying foreign employment income. The financial limit in relation to his OWR election for 2025-26 restricts the relief which can be claimed in respect of Armand’s £400,000 qualifying foreign employment income for 2025-26 to the lower of £300,000 or £300,000 (30% of £1m). As a result Armand makes an OWR claim for relief of £300,000 in 2025-26. 

Armand receives earnings of £1.2m in 2026-27, which are for that tax year, £480,000 of which was qualifying foreign employment income. He also receives a bonus of £200,000 which relates to his duties performed in 2025-26, £80,000 of which was qualifying foreign employment income. His taxable earnings in 2026-27 is therefore £1.4m. 

To determine how much relief Armand can claim in 2026-27, it is then necessary to consider the financial limit which applies to each of the tax years for which an OWR election has been made, and in relation to which there is qualifying employment income taxable in 2026-27.

While Armand has total taxable earnings of £1.4m in 2026-27, the financial limit which relates to the OWR election for 2026-27 only considers qualifying employment income for that tax year. This means the financial limit relating to the qualifying employment income for 2026-27 only considers the taxable earnings of £1.2m that were for 2026-27, as the £200,000 bonus relates to the previous tax year. This means the financial limit restricts the relief which can be claimed in respect of Armand’s £480,000 qualifying foreign employment income for 2026-27 to the lower of £300,000 or £360,000 (30% of £1.2m). As a result, Armand can claim £300,000 relief under OWR on his qualifying foreign employment income for 2026-27.

It is then necessary to consider the effect of the financial limit which relates to the OWR election for 2025-26 on the bonus of £200,000 which is taxable in 2026-27. When applying the financial limit in 2026-27, Armand has to take into account the total amount of qualifying employment for 2025-26 which was taxable both in 2025-26 and in 2026-27. This means the financial limit restricts the relief which Armand can claim to the lower of £300,000 and £360,000 (30% of £1.2m). However, as Armand has claimed relief of £300,000 in 2025-26, the financial limit for 2025-26 would restrict the relief which he could claim on his 2025-26 earnings taxable in 2026-27 to nil.

Example 2

Anjelica is a qualifying new resident for both 2025-26 and 2026-27 and makes an OWR election for both tax years.  

Anjelica receives earnings of £1m in 2025-26, which were for that tax year, £250,000 of which was qualifying foreign employment income. The financial limit in relation to her OWR election for 2025-26 restricts the relief which can be claimed in respect of Anjelica’s £250,000 qualifying foreign employment income for 2025-26 to the lower of £300,000 or £300,000 (30% of £1m). As a result, the financial limit does not restrict the amount of relief Anjelica can claim, so that she makes an OWR claim for relief of £250,000 in 2025-26. 

Anjelica receives earnings of £1.2m in 2026-27, which are for that tax year, £240,000 of which was qualifying foreign employment income. She also receives a bonus of £400,000 which relates to her duties performed in 2025-26, £100,000 of which was qualifying foreign employment income. Her taxable earnings in 2026-27 is therefore £1.6m.  

To determine how much relief Anjelica can claim in 2026-27, it is then necessary to consider the financial limit which applies to each of the tax years for which an OWR election has been made, and in relation to which there is qualifying employment income taxable in 2026-27.  

While Anjelica has total taxable earnings of £1.4m in 2026-27, the financial limit which relates to the OWR election for 2026-27 only considers qualifying employment income for that tax year. This means the financial limit relating to the qualifying employment income for 2026-27 only considers the taxable earnings of £1.2m, as the £400,000 bonus relates to the previous tax year. This means the financial limit restricts the relief which can be claimed in respect of Anjelica’s £240,000 qualifying foreign employment income for 2026-27 to the lower of £300,000 or £360,000 (30% of £1.2m). Again, the financial limit does not restrict the amount Anjelica can claim, so that she can claim £240,000 relief under OWR on her qualifying foreign employment income for 2026-27. 

It is then necessary to consider the effect of the financial limit which relates to the OWR election for 2025-26 on the bonus of £400,000 which is taxable in 2026-27. When applying the financial limit in 2026-27, Anjelica has to take into account the total amount of qualifying employment for 2025-26 which was taxable both in 2025-26 and in 2026-27. This means the financial limit restricts the relief which Anjelica can claim to the lower of £300,000 and £420,000 (30% of £1.4m). As Anjelica has claimed relief of £250,000 in 2025-26, the financial limit for 2025-26 would restrict the relief which she could claim on her 2025-26 earnings taxable in 2026-27 to £50,000. 

This means that the financial limit does not restrict the amount of relief Anjelica can claim in her 2026-27 return in relation to her qualifying foreign employment income for 2026-27, but it does restrict the amount of relief Anjelica can claim in her 2026-27 return in relation to her qualifying foreign employment income for 2025-26. This also means that if she has qualifying foreign employment income for 2025-26 charged to tax in any subsequent tax year, the financial limit will prevent Anjelica from claiming any further relief on this income under OWR. However, if Anjelica has qualifying foreign employment income for 2026-27 charged to tax in any subsequent tax year, she will be able to claim up to £60,000 further relief before the financial limit prevents any further claim for relief on income relating to overseas duties performed in 2026-27.  

Example 3 

In March 2026, Johann was approached by another employer and offered a job. The new employer paid him £400,000 as an inducement to leave his existing employment. This is an amount of earnings from the new employment, received in 2025-26. Johann commenced the new employment in May 2026.  

Johann becomes UK resident in 2026-27 and is eligible to make an election for OWR in that year. As Johann works both in and outside the UK in 2026-27, he makes an OWR election in his return for that year, which means he is able to make an OWR claim for relief in respect of his qualifying foreign employment income for 2026-27.  

In order to determine the extent to which the £400,000 is chargeable to UK income tax, it is necessary to determine the year the earnings are ‘for’. Even though the £400,000 was paid in 2025-26, section 17 ITEPA 2003 treats the £400,000 as being for the first year in which the employment was held, which was 2026-27 (see EIM40005). As Johann is UK resident in 2026-27, the £400,000 is chargeable under section 15 ITEPA 2003, and however it is is taxable in 2025-26 as this is the tax year in which it was received. 

As the £400,000 is for 2026-27 per section 17, it would be qualifying employment income as it is for a qualifying year. However, while Johann has made an OWR election for 2026-27, an OWR claim for relief has to be made for the qualifying year, or any subsequent tax year. As the £400,000 is taxable in 2025-26 rather than 2026-27, this means no claim for relief can be made in relation to any part of this income which is qualifying foreign employment income in Johann’s 2025-26 tax return.  

Additionally, although the £400,000 is qualifying employment income, it is not taken into account when applying the financial limit in relation to the 2026-27 OWR election, either in the qualifying year, or any subsequent tax year in which an OWR claim for relief is made which relates to 2026-27. 

Example 4

Sergei is a qualifying new resident for 2025-26 and is eligible to make an election for OWR in that year. As he works both in and outside the UK, he makes an OWR election for 2025-26 in his return for that year. Sergei received earnings of £500,000 in 2025-26, which are for this tax year. Sergei performed 40% of his duties outside the UK in 2025-26, so that he has qualifying foreign employment income of £200,000. The financial limit restricts the amount of relief Sergei can claim on his qualifying foreign employment income to the lower of £300,000 and £150,000 (30% of his qualifying employment income for 2025-26). As a result, Sergei can claim £150,000 relief under OWR in his 2025-26 return.  

In 2026-27, Sergei receives a bonus of £100,000 which relates to his duties performed in 2025-26. As he made an OWR election in 2025-26, he can make a claim for relief on any part of this bonus which is qualifying foreign employment income in his return for 2026-27, as this is the tax year in which it is charged to tax. As 40% of the bonus relates to duties performed outside the UK, he has qualifying foreign employment income of £40,000, although it is then necessary to consider the application of the financial limit. Sergei’s total qualifying employment income for 2025-26 which has been charged to tax is £600,000. This is the total of £500,000 which was charged in 2025-26 and £100,000 which was charged in 2026-27. This means the total relief Sergei can claim on this income under the financial limit is the lower of £300,000 and £180,000 (£600,000 x 30%). Sergei has already claimed relief of £150,000 in 2025-26, so he can claim relief of £30,000 in 2026-27.  


Example 5

Luca is a qualifying new resident for 2025-26 and makes an OWR election for that tax year. Luca received employment income of £500,000 in 2025-26, which is for this tax year, and taxable in this tax year, but only £400,000 of this is qualifying employment income (general earnings and amounts which count as employment income under either Part 7 or Part 7A ITEPA 2003 are qualifying employment income). Luca performs 40% of his duties outside of the UK and incurs allowable deductions of £30,000 against the qualifying employment income.  

Luca has qualifying foreign employment income of £160,000, so that the qualifying deductions set against this amount is £12,000 (£30,000 x 40%). This means the amount of the net taxable employment income which reflects qualifying foreign employment income is £148,000. The financial limit would then restrict the relief available to the lower of £300,000 or 30% of the total employment income which could qualify for OWR.  

As the maximum relief available is less than £300,000, the starting point for this would be total employment income for the qualifying year charged to tax, arising out of an employment performed in and outside the UK, which can qualify for OWR, which would be £370,000 (£400,000 - £30,000 allowable deductions). This would restrict the relief which could be claimed to £111,000 (£370,000 x 30%). 

The £100,000 which is charged to tax, but which is not qualifying employment income, is not taken into account either when determining the amount of OWR available, or the application of the financial limit. Similarly, the £30,000 qualifying employment income which is not charged to tax, because of the allowable deductions, is not taken into account either when determining the amount of OWR available, or the application of the financial limit. 

 

Where the financial limit restricts the amount of relief which can be claimed on qualifying foreign employment income, employees may be able to claim double taxation relief on any of the qualifying foreign employment income not subject to OWR, see INTM160000 for further guidance.  

Examples involving multiple employments can be found at EIM43601.