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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, orÌý
• £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.Ìý

The term “relevant qualifying employment incomeâ€� 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.Ìý

To make an OWR claim for relief in relation to a qualifying year, an OWR election must be made for that qualifying year.ÌýOnce 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.Ìý

The financial limit applies to each qualifying year individually. If the foreign employment relief 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.

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

Example 1Ìý

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

£480,000 of Armand’s £1.2m earnings for 2026-27 is qualifying foreign employment income, so that this is the maximum amount of relief he could claim, subject to the financial limit. To determine how much relief is available, it is then necessary to consider the financial limit. While Armand has taxable earnings of £1.4m in 2026-27, the financial limit only considers the relevant employment income which is for 2026-27, which is the earnings of £1.2m, as £200,000 relates to the previous tax year. This means the financial limit is 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.

Armand had previously received earnings of £1m in 2025-26, which were for that tax year, £400,000 of which was qualifying foreign employment income. The financial limit for 2025-26 restricted the relief which Armand could claim in 2025-26 to £300,000, which he claimed in that tax year. As a result, the financial limit for 2025-26 would restrict the relief which Armand could claim on his 2025-26 earnings which are taxable to 2026-27 to nil.

Example 2

SergeiÌýis 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.Ìý

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.Ìý

The financial limit only takes into account qualifying employment income arising out of an employment performed both in and outside the UK.ÌýWhere 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.

Example 3

SanyaÌýis a qualifying new resident for 2025-26 and is eligible to make an election for OWR in that year. Sanya works for two employers in 2025-26, Company 1 and Company 2. Sanya performs all of his duties for Company 1 in the UK in 2025-26 and receives earnings of £150,000 for these in 2025-26. Sanya receives £200,000 earnings for his duties for Company 2 in 2025-26, 50% of which were performed outside the UK.Ìý

Sanya makes an OWR election for 2025-26. No relief is available on his earnings from his employment with Company 1. £100,000 of his earnings from his employment with Company 2 are qualifying foreign employment income. As his employment with Company 1 is wholly performed in the UK, the £150,000 from this employment is ignored for the purposes of determining qualifying employment income, when applying the financial limit. This means the relief available on Sanya’s qualifying foreign employment income for 2025-26 is restricted to the lower of £300,000 and £60,000 (£200,000 x 30%). Sanya can claim £60,000 relief under OWR in his 2025-26 return.Ìý

The financial limit only takes into account qualifying employment income charged to tax.Ìý

Example 4

Jennifer is a qualifying new resident for 2025-26 and makes an OWR election for that year. Jennifer works for two employers in 2025-26, Company A and Company B.

• Jennifer performs 50% of her duties for Company A in the UK and 50% overseas and received total earnings of £500,000 from the employment in 2025-26, all of which are for that tax year. She performed duties of this employment on 50 days in 2025-26.
• Jennifer performs 80% of her duties for Company B in the UK and 20% overseas and received total earnings of £200,000 from the employment in 2025-26, all of which are for that tax year. She performed duties of this employment on 150 days in 2025-26.

As the duties of both employments were performed wholly or partly outside the UK, the earnings from both employments for 2025-26 are qualifying employment income. It is necessary to determine the extent to which the earnings from each employment are qualifying foreign general earnings on a just and reasonable basis.

Jennifer has qualifying foreign employment income from Company A of £250,000 (£500,000 x 25/50) and from Company B of £40,000 (£200,000 x 30/150) giving total qualifying foreign employment income in 2025-26 of £290,000 . However, it is then necessary to consider the financial limit to determine the relief which Jennifer can claim in that tax year.

The total qualifying employment income for the tax year is £700,000 (£500,000 + £200,000) and therefore the financial limit would restrict the maximum relief which can be claimed to the lower of £300,000 or 30% of the total qualifying income (£210,000). Jennifer can therefore claim OWR of £210,000 in her 2025-26 tax return.

Example 5Ìý

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.Ìý

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.Ìý

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.Ìý