INTM163155 - Employment income – deferred remuneration

Paragraph 1 of Article 15 of the OECD Model Tax Convention (income from employment) provides that when a person receives income from employment, it will be taxable only in their State of residence unless they have carried out duties in another state. Where a person has carried out their employment in another state, that other state may also be able to tax the employment income, subject to paragraph 2 of Article 15. For these purposes, it is the treaty definition of residence that is used. Article 15 of the OECD Model Tax Convention is broadly replicated in the majority of the UK’s tax treaties.

Particular issues can arise when a person has changed their State of residence before they receive the remuneration for employment income earned in an earlier period. This “deferred remuneration” might be in the form of a bonus or a stock option, non-money earnings or various other forms.

Please note that this guidance only deals with the income tax treatment of deferred remuneration. Separate guidance deals with the treatment of deferred remuneration for National Insurance Contributions (‘NICs’) purposes within NIM33650. Due to differences in the rules for determining income tax and NICs liabilities on deferred remuneration, there may be circumstances where NICs are due on this income, but there is no UK income tax liability as a consequence of the applicable tax treaty.

The Employment Income Manual provides detailed guidance on the scope of the charge to UK income tax on employment income (with dedicated guidance on deferred remuneration at EIM40013–40016). Broadly:

  • Section 15 ITEPA 2003 brings all general earnings for a tax year in which an employee is a UK resident (under UK domestic law) within the scope of the charge to UK income tax[1]. Section 15 also specifies that all such chargeable general earnings are taxable in the tax year in which they are received;
  • Section 16 ITEPA 2003 explains when earnings are “for” a tax year; and
  • Sections 18 & 19 ITEPA 2003 explain when general earnings are treated as “received” for tax purposes: for money earnings this is generally the earlier of when the employee becomes entitled to the remuneration, and when it is paid.

When applying this legislation in situations where at least some of the income is from employment carried out abroad, regard must be had to the tax treaty between the UK and the country where the employment activity occurs. Where there is a change in residence prior to remuneration relating to a period of UK residence being received, it is also necessary to have regard to the treaty between the UK and the new State of residence, if there is one. This guidance concerns the interaction of a typical tax treaty with domestic law as it applies to deferred remuneration.

  • Gabriel was UK-resident for all of 2023/24. He exercised his employment in both the UK and Country A
  • The UK has a tax treaty with Country A which includes the 2017 OECD Model Article 15 (income from employment)
  • Gabriel became resident in Country B for all of 2024/25, and was no longer resident in the UK under domestic rules
  • The UK also has a tax treaty with Country B which includes Model Article 15

  • In December 2024, Gabriel received deferred remuneration relating to his employment duties performed in 2023/24, such that it was taxable under section 15 ITEPA 2003.

Under a typical tax treaty, the UK will be able to tax the deferred income if the UK is either the State of residence (under the treaty definition of residence) or the State of source. The UK is the State of source for the part of the deferred remuneration that relates to the employment exercised in the UK and the OECD Commentary on Article 15 is clear that the State of source never changes – the UK will remain the State of source even after Gabriel changes his residence. If the deferred income is taxable under ITEPA, and the conditions under the equivalent of paragraph 2 of the Model Tax Convention do not prevent it, the UK will be able to tax this portion of the deferred remuneration.

The UK is not the State of source for the deferred remuneration that relates to the employment exercised in Country A. The UK will therefore only be able to tax this income if it is the State of residence, under the treaty definition. In order to determine whether the UK is the State of residence, we must consider the correct point in time at which to apply the test.

As explained above, the effect of sections 15 and 16 ITEPA 2003 are that earnings are chargeable to UK income tax when they are for a tax year for which the employee is a UK resident (under domestic law). Under section 15 ITEPA 2003, it is only at the point the earnings are received that they become taxable, and so can be charged to tax under section 6 ITEPA 2003. The deferred remuneration was money earnings, so that the charge arises in the tax year of the receipt (per section 18 ITEPA 2003), rather than the tax year in which the income was earned. When the UK is seeking to impose a charge to tax on the employee under domestic legislation, we must consider the application of the relevant tax treaty and establish where the employee is resident for the purposes of that treaty.

In the example given above, under the tax treaty definition of residence Gabriel is resident in Country B in December 2024 when the UK would apply the tax charge under section 6. This means that at the time of the tax charge, the UK is neither the State of residence nor the State of source for the portion of the deferred income that relates to employment exercised in Country A. The UK is therefore prevented from taxing this income by the tax treaty with Country B.


Further Considerations

The following questions and answers provide further clarification on how this guidance works in specific situations.

  • How can an employee obtain overpaid tax that has been paid to the UK when a tax treaty has removed the UK's right to tax

If an employee has paid UK tax that is not in accordance with the tax treaty as set out in this guidance, they may make or amend a Self-Assessment return to obtain the tax back.  If they are out of time to make such a return or amendment they should make an application under the Mutual Agreement Procedure under the relevant tax treaty.  Guidance on the Mutual Agreement Procedure can be found at INTM423000-423130.

A claim for overpayment relief will be rejected in these circumstances, as this would fall under the exclusion whereby there exists another formal route to request a repayment. Guidance on this can be found at SACM12065 (see Case B).

  • What if the tax charge is for an earlier year, when the employee was a UK-resident?

In some cases, the individual may make a correction to his or her return, or HMRC may make an assessment for a particular year. If the year of assessment for the tax is during a period of UK residence (under the tax treaty), it does not matter that the individual may have changed residence by the time the assessment is raised. The important factor is whether the person was resident in the UK for the period being assessed.

  • What if the deferred income is paid in tranches?

The same principle will apply to payments made in tranches – the question is whether the UK is taxing as the State of source or the State of residence. If this is as the State of residence, is the employee resident in the UK, under the relevant treaty, at the point that the payment is received and the tax charge is applied?

  • What are Country A's taxing rights? Would the outcome change if the employee became resident in Country A?

Country A, in the example above, is the State of source and so as long as the conditions under the equivalent of paragraph 2 of the Model Tax Convention do not prevent it Country A will be able to tax the income. If Gabriel had moved to Country A in 2024/25 instead of Country B, this would not affect the analysis for the UK – the UK would still not be the State of source or the State of residence.

  • Does it matter whether Country A or Country B actually apply their taxing rights?

The UK’s taxing rights under the relevant treaty are not dependent on whether another country has taxed the income – the only issue to consider is whether the UK is the State of source or the State of residence. If it is neither, then the treaty does not permit the UK to tax the individual on the non-UK source element of the deferred income. The exception to this is where the treaty has a “subject to tax” requirement (that is, if the treaty only restricts a country from taxing a person if they are taxed in the other country), or if there are arrangements that would be caught by an anti-avoidance provision.

  • How does the treaty apply for incoming employees?

Similar principles apply, but in reverse, per the following example:

  • Carol was resident for all of 2023/24 in Country C. She exercised her employment in both the UK (30 days) and Country C (230 days)
  • The UK has a tax treaty with Country C which includes the 2017 OECD Model Tax Convention Article 15 (income from employment)
  • Carol became resident in the UK for all of 2024/25 under both UK domestic rules and the tax treaty with Country C.
  • In December 2024, Carol received deferred remuneration relating to her employment duties performed in 2023/24, such that it was taxable under section 15 ITEPA 2003.


The portion of Carol’s earnings relating to her 2023/24 duties performed in the UK would be chargeable in the UK under section 27 ITEPA 2003.  In this respect the UK is both the state of source when the employment was exercised, and the state of residence when the earnings were received.  If Carol’s earnings relating to her UK duties were also taxed by Country C on an arising basis during 2023/24 double taxation will have occurred.  Please refer such cases to the Tax Treaty Team in BAI.

The portion of Carol’s earnings relating to her 2023/24 duties performed in Country C would not be subject to UK tax, as Carol was not UK resident when the activity took place, and the employment was not exercised in the UK.

  • What if the employment that the deferred remuneration relates to pre-dates the treaty?

Using the example of Gabriel above, if the treaty between the UK and Country B only came into force for the period 2024/25 the same principles will apply. That is, the point at which the UK seeks to tax Gabriel will still be during 2024/25, and the treaty will apply to that period and so the UK can only tax if it is the State of source or the State of residence.  The fact that the income was earned before the treaty came into force is not relevant.

  • What if there is no treaty?

If there is no treaty then the UK’s domestic law will apply without restriction, which may include a credit for taxes paid on the employment in the other country. The Employment Income Manual sets out how UK law applies.  

  • Does this guidance relate to the 2025 reform of the non-domiciled regime?

No, this guidance applies to both the new Foreign Income and Gains (FIG) regime and the previous remittance basis provisions.  Guidance on the new FIG regime can be found at RFIG40000+.


[1] Unless the year is a split year, so that any of the general earnings are excluded earnings