overseas workday relief; london accountant; farringdon accountant; wimbledon accountant

Guide to overseas workday relief in the UK

Guide to overseas workday relief in the UK

Are you a non-domiciled UK resident working abroad and curious about your tax obligations? If so, you’ve come to the right place. This article provides an in-depth look at a valuable tax relief known as Overseas Workday Relief (OWR) in the UK. We’ll explore what it is, how it works, who’s eligible, and how you can benefit from it.

Please note that this information can be complex, and it’s always a good idea to consult a trusted UK tax specialist when making any decisions. Our CIMA-registered accountants at CIGMA Accounting would be happy to assist with any of your personal or corporate tax needs. Go to our contact page to book a free consultation.

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What is Overseas Workday Relief (OWR)?

Overseas Workday Relief is a tax relief available to UK non-domiciled residents who work abroad during the tax year and utilise the remittance basis of taxation. It allows them to legitimately avoid paying tax on earnings from a UK employment when duties are performed wholly or partly overseas. Usually, any UK tax-resident with UK employment income is required to pay tax on all such income. However, OWR provides an exception to this rule for non-doms who work outside the UK as part of their employment.

Who is Eligible for Overseas Workday Relief?

To claim OWR, you must meet certain criteria. You must:

  1. Be a non-dom (non-domiciled) in the UK and utilise the remittance basis of taxation.
  2. Have been considered a non-resident of the UK for the previous three tax years but be considered a UK tax resident in the year you’re claiming the tax relief.
  3. Perform some or all your work duties outside of the UK.

How Does Overseas Workday Relief Work?

OWR operates on the remittance basis of taxation, which means that you are only taxed on the income you bring into the UK. To benefit from OWR, you must pay your foreign-earned income into a non-UK bank account and not remit the earnings to the UK. This process requires keeping accurate records of your movements and work records to provide evidence you have not remitted any foreign-earned funds into the UK.

To be eligible for tax relief, the account should be held in your name and contain less than £10 at the beginning of the tax year. Ideally, the account should only ever have employment income credited to it so that it qualifies as a special mixed fund.

Once you’ve established your tax residence status and you’re considered a UK tax resident, it’s important to start tracking the number of days you’ve worked outside the UK. The real benefits of OWR are for non-doms earning in the highest tax band (over £125,000 per year) who subsequently work for 10% or more of the tax year outside the UK. If someone meets this basic criteria, £12,500 of their income would be exempt from UK tax, saving them £5,625 (i.e., 45% of £12,500).

Claiming Overseas Workday Relief

To claim OWR, you need to provide proof that you worked outside the UK for a UK employer. This requires keeping records of the days you worked overseas along with supporting evidence, such as travel documents and copies of your work calendar. Remember, this is all done via your UK Self-Assessment Tax Return and may require specialist advice to ensure you’re making disclosures with reference to best practice.

Given the complexities around non-doms, the Remittance Basis of taxation, and OWR, it’s highly recommended that people wishing to make use of these schemes seek advice before making decisions. A UK tax specialist can advise you on the most tax-efficient strategy for working in the UK, help you plan your time, and help you keep suitable records to ensure you can benefit from OWR.

In conclusion, if you’re a non-dom UK resident working abroad, the OWR can offer significant tax savings. With careful planning and expert advice, you can optimise this tax relief and ensure that you’re in compliance with UK tax laws.

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how to claim double taxation relief in the UK; london accountant

Double Taxation: How to Claim Relief for Foreign Income

Double Taxation: How to Claim Relief for Foreign Income

If you earn income from a foreign source, you may find yourself in a situation where you’re taxed twice — both by the country where your income originates and by the UK. However, the good news is that you can often claim tax relief to recover some or all of the additional tax you’ve paid. In this blog post, we’ll explore the process of claiming relief for foreign income in an easy-to-understand manner.

This post explores double taxation for UK residents. There is a separate process for UK non-residents who are being taxed on their UK income by the foreign country in which they reside.

 

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Claiming Relief Before Being Taxed on Foreign Income

In some cases, you may need to apply for tax relief in the country where your income is generated before it is taxed. This is typically applicable when:

  1. Your income is exempt from foreign tax but is taxed in the UK (e.g., most pensions).
  2. It is required by the double-taxation agreement between the two countries.

To initiate the process, you should contact the foreign tax authority and request the appropriate form. If there is no form available, you can apply by letter. Before applying, you must prove your eligibility for tax relief. You can do this by either completing the form and sending it to HM Revenue and Customs (HMRC), who will verify your residency status and return the form to you, or by including a UK certificate of residence if you are applying by letter. Once you have obtained proof of eligibility, you should send the form or letter to the foreign tax authority.

Claiming Relief After Paying Tax on Foreign Income

If you have already paid tax on your foreign income, you can generally claim Foreign Tax Credit Relief when reporting your overseas income in your tax return. The amount of relief you receive depends on the UK’s double-taxation agreement with the country where your income originates.

Even if there is no specific agreement in place, you will usually still be eligible for relief unless the foreign tax does not correspond to UK Income Tax or Capital Gains Tax. If you’re unsure about whether you qualify for relief or need assistance with double-taxation relief, don’t hesitate to reach out to us at CIGMA Accounting for assistance.

Determining the Amount of double taxation Relief

It’s important to note that the full amount of foreign tax paid may not be refunded to you. The relief you receive will be reduced if:

  1. The double-taxation agreement specifies a lower relief amount.
  2. The income would have been taxed at a lower rate in the UK.

HMRC provides guidance on how Foreign Tax Credit Relief is calculated, including special rules for interest and dividends, which can be found in their ‘Foreign notes’ section. However, it’s essential to remember that you cannot claim this relief if the UK’s double-taxation agreement requires you to claim tax back from the country where your income originates.

Capital Gains Tax

When it comes to Capital Gains Tax, typically, you’ll pay tax in the country where you are a resident and be exempt from tax in the country where the capital gain occurs. Usually, you won’t need to make a claim for relief.

However, there is an exception for UK residential property. Regardless of your residency status, you are required to pay Capital Gains Tax on any gains made from UK residential property.

When to Claim Capital Gains Relief

The rules for claiming relief vary depending on the nature of the asset generating the gain. If the asset cannot be taken out of the country, such as land or a house, or if it is used for business purposes in that country, you’ll need to pay tax in both countries and seek relief from the UK.

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double tax treaties in the UK: what they are and how to claim after being taxed twice; london accountant; farringdon accountant

Understanding double tax treaties in the UK

Understanding double tax treaties in the UK

Double tax treaties, also known as double taxation agreements, play a vital role in facilitating international trade and investment by preventing double taxation. These agreements are designed to provide relief and clarity to taxpayers operating across borders. In this blog post, we will explore the concept of double tax treaties, examine their impact on taxpayers, and shed light on the countries with which the United Kingdom (UK) has such treaties.

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What are Double Tax Treaties?

Double tax treaties, also known as tax conventions or tax treaties, are agreements established between two or more countries to resolve potential conflicts regarding taxation. These treaties aim to eliminate or reduce instances of double taxation, where the same income is taxed by more than one jurisdiction. By doing so, they help avoid situations where taxpayers could be subjected to excessive tax burdens, fostering a favourable environment for cross-border trade and investments.

Double tax treaties typically address several key aspects, including:

Tax Residency
Determining an individual or entity’s tax residency status is essential to determine which country has the primary right to tax their income.

Income Categories
The treaties define the various types of income, such as dividends, interest, royalties, and capital gains, and allocate taxing rights between the countries involved.

Avoidance of Double Taxation
The agreements specify mechanisms to avoid double taxation, such as granting exemptions, providing tax credits, or applying a reduced tax rate.

Exchange of Information
Double tax treaties often include provisions for the exchange of information between tax authorities to prevent tax evasion and ensure compliance.

 

Which Taxpayers are Affected by double taxation agreements?

Double tax treaties impact different categories of taxpayers engaging in international activities. These include:

Individuals
Individuals who are tax residents of one country but earn income in another are directly affected by double tax treaties. These can include employees working abroad, students receiving scholarships, or retirees receiving pensions from foreign sources.

Businesses
Multinational corporations, small and medium-sized enterprises (SMEs), and sole proprietors engaged in cross-border trade or investment activities are significantly affected. Double tax treaties provide clarity on the taxation of business profits, dividends, interest, and royalties, avoiding potential tax burdens.

Investors
Individuals or entities investing in foreign countries may be subject to various taxes, including capital gains tax. Double tax treaties can help mitigate the impact of such taxes by providing relief or reducing tax rates.

 

Which countries have Double Tax Treaties with the UK?

The UK has an extensive network of double tax treaties with numerous countries worldwide. These treaties aim to promote international trade and investment by facilitating fair and efficient tax treatment. Here are some notable countries with which the UK has double tax treaties:

United States
The UK US double tax treaty helps prevent double taxation on income and capital gains for individuals and businesses operating across these two countries.

Germany
The double tax treaty between the UK and Germany addresses various aspects of taxation, including business profits, dividends, interest, and royalties, benefiting taxpayers from both nations.

France
The double tax treaty between the Uk and France focusses on avoiding double taxation, determining tax residency, and ensuring effective exchange of information, benefiting taxpayers in both countries.

China
The UK and China have a double tax treaty that helps avoid double taxation and provides relief for individuals and businesses earning income in both jurisdictions.

These examples represent only a fraction of the countries with which the UK has double tax treaties. The UK’s extensive network of such agreements enhances certainty, reduces barriers, and encourages cross-border economic activities.

 

How to claim tax relief if you are taxed twice

To claim relief on foreign income and avoid being taxed twice, there are a few important steps to follow. If you haven’t been taxed yet, you should apply for tax relief in the country where your income originates by contacting the foreign tax authority and submitting the necessary form or letter. If you’ve already paid tax on your foreign income, you can claim Foreign Tax Credit Relief when reporting your overseas income in your UK tax return.

The amount of relief you receive depends on the double-taxation agreement between the UK and the country where your income is from. Make sure to consult HM Revenue and Customs (HMRC) or seek professional tax advice if you have any uncertainties or need assistance with double-taxation relief.

You can also read our full post on claiming relief for double taxation.

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Wimbledon Accountant

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EC1R 3DA