Overseas relief: how to make the most of it

TaxTalk - June 2023

read timeRead time: 3 mins

Whether you are a famous sports star or just someone who works abroad a lot, you could save large sums with this relief if you qualify.

Overseas Workday Relief (OWR) gives certain individuals an opportunity to keep earnings related to work completed in a country other than the UK outside the scope of UK taxes. It’s not available to everyone, but for certain non-UK domiciled people it can be quite lucrative.

To qualify for OWR you must:

  • be a non-UK domiciled individual throughout the year
  • be a UK tax resident following three consecutive years of non-UK residence
  • elect to be taxed on the remittance basis
  • have a UK employment where your duties are performed wholly or partly outside the UK
  • have the proportion of your non-UK duties paid into an offshore qualifying bank account.

If you qualify for OWR, you can claim it for the first three tax years (including split-years) of UK tax residency. But the funds that are not liable to UK taxes must remain outside the UK and would be liable to UK taxes if remitted to the UK in that year, or a future year.

So OWR can give individuals who work outside the UK, for a UK employer, an opportunity to treat those specific earnings as foreign income not liable to UK taxes. This reduces tax liability and means they can receive a repayment of PAYE taxes if they’ve already been charged.

When claiming OWR it’s essential to have accurate records to support the claim, as HMRC may ask for evidence of these. It can be a complicated area, so we would suggest taking professional advice and planning accordingly.

Take a famous footballer

In sport, we see this a lot with athletes moving to the UK for potentially short-term contracts, or for the first few years of their longer-term contracts.

Early this year Chelsea broke the record of the most expensive Premier League transfer of all time, taking Enzo Fernandez from Benfica for £106.8m.

It’s understood he is earning around £315,000 per week. That’s a staggering £16m per year. With the highest rate of income tax at 45%, you could estimate his UK income tax liability at over £7m.

Assuming Fernandez qualifies for OWR in the current UK tax year (2023/24), it wouldn’t be unrealistic to assume his non-UK related workdays could be around 15+%. If that’s the case, claiming OWR could reduce his liability by around £1m.

What is a sporting workday?

But when it comes to sport, identifying a ‘workday’ might not be as simple as for those of us who are more office based. The standard definition for a workday, per the Statutory Residence Test (UK Tax Residency Guide), is a day in which you have completed three hours or more of work.

For sporting individuals, they are instead split into ‘performance days’ or ‘training days’. A performance day would mean taking part in a competition or being involved in public events. A training day is considered as any day where you spend three hours or more in physical activity, which should contribute towards the performance of your sport. This could include practising your sport, or maintaining general fitness for your sport.

So a performance day for Fernandez would be playing a match, be that for Chelsea, Argentina, or any other team. And his training days could be general training and specific training camps, but also some of his days during ‘winter break’ if he was maintaining general fitness.

With Chelsea planning to return to the USA this summer for training and games, along with the various matches in Europe over recent years, it can be quite lucrative for players like Fernandez to consider available tax claims and planning opportunities in their first few years in the UK.

Is it an offside offence?

Although it may not stand up in the court of popular opinion, OWR can be sensible tax planning for international individuals coming to the UK. It can help to reduce UK tax exposure where the salary funds may not specifically be needed while in the UK and can be used in the future after their departure.

But OWR can be challenging when the employer, or club, will not pay a salary into an offshore bank account. Or when the individual will need access to the funds in the UK now, or in the future.

If you would like advice on any of the issues raised in this article, please contact Phil Clayton.