Finance Act 2025

38 Claim for relief on foreign employment income U.K.

(1) In Part 2 of ITEPA 2003 (employment income: charge to tax), after Chapter 5B insert—

“Chapter 5C U.K. Relief for new residents on foreign employment income

Foreign employment election U.K.

41M Foreign employment election for qualifying new residents

(1) This Chapter applies if an individual is a qualifying new resident for a tax year (the “qualifying year”).

(2) An individual is a qualifying new resident for a tax year for the purposes of this Chapter if the individual is a qualifying new resident for the tax year for the purposes of Chapter 5 of Part 8 of ITTOIA 2005 (see section 845B of that Act).

(3) The individual may make an election for the qualifying year under this section (“a foreign employment election”).

(4) Section 41P makes provision about a claim for relief—

(a) which an individual can make for the qualifying year or any subsequent tax year, where the individual has made a foreign employment election, and

(b) which entitles the individual to relief in that year calculated by reference to employment income that is in respect of the qualifying year.

(5) Sections 41Q (amount of relief available) and 41R (limit on relief) set out how to determine the amount of relief to which the individual is entitled.

(6) See also—

(a) sections 845C to 845E of ITTOIA 2005, which set out some income tax consequences of a foreign employment election, and

(b) section 1K of TCGA 1992, which provides for the loss of the individual’s annual exempt amount for capital gains tax where a foreign employment election is made.

(7) A foreign employment election must be made in a return.

(8) A foreign employment election for the qualifying year must be made before the end of the period of 12 months beginning with 31 January after the end of the qualifying year.

(9) A foreign employment election may not be made as a consequential claim (within the meaning of section 43C(5) of TMA 1970) if the circumstances which give rise to the consequential claim result from a loss of tax brought about carelessly or deliberately by the individual or a person acting on the individual’s behalf.

(10) For the purposes of this Chapter—

(a) “return” means a return under section 8 of TMA 1970 (personal return),

(b) references to a claim or election being included in a return include a claim or election being so included as a result of an amendment of the return, and

(c) subsections (5) to (7) of section 118 of TMA 1970 (loss of tax brought about carelessly or deliberately) apply as they apply for the purposes of that Act.

Key definitions U.K.

41N Key definitions

(1) This section sets out some definitions that apply for the purposes of this Chapter.

(2) “Qualifying employment income” means—

(a) qualifying general earnings,

(b) qualifying third party income, and

(c) qualifying securities income.

(3) “Qualifying foreign employment income” means—

(a) qualifying foreign general earnings,

(b) qualifying foreign third party income, and

(c) qualifying foreign securities income.

(4) Section 41T defines what it means—

(a) for general earnings to be “qualifying general earnings”, and

(b) for qualifying general earnings to be “qualifying foreign general earnings”.

(5) Section 41U defines what it means—

(a) for third party income to be “qualifying third party income”, and

(b) for qualifying third party income to be “qualifying foreign third party income”.

(6) Section 41V defines what it means—

(a) for securities income to be “qualifying securities income”, and

(b) for qualifying securities income to be “qualifying foreign securities income”.

Claim for relief U.K.

41P Claim for relief for qualifying new residents

(1) Where an individual has made a foreign employment election, the individual may make a claim for relief for the qualifying year or any subsequent tax year (“a foreign employment relief claim”).

(2) Where an individual makes a foreign employment relief claim for a tax year, the individual is entitled to relief that is equal to so much of the net taxable employment income for that year as—

(a) reflects qualifying foreign employment income (see section 41Q), and

(b) is identified as such in the claim.

(3) But subsection (2) only applies to the extent the total amount of the relief given does not exceed the limit (see section 41R).

(4) The relief is given by deducting the amount of the relief in calculating the individual's net income for the tax year for which the claim is made (see Step 2 of the calculation in section 23 of ITA 2007).

(5) A foreign employment relief claim must be made in a return.

(6) A foreign employment relief claim for a tax year must be made before the end of the period of 12 months beginning with 31 January after the end of that tax year.

(7) A foreign employment relief claim may not be made as a consequential claim (within the meaning of section 43C(5) of TMA 1970) if the circumstances which give rise to the consequential claim result from a loss of tax brought about carelessly or deliberately by the individual or a person acting on the individual’s behalf.

(8) For the purposes of this Chapter “net taxable employment income”, in relation to a tax year, means the employment income on which the individual is charged to tax for the tax year (see section 9(1)).

41Q Amount of relief available

(1) For the purposes of section 41P(2), the amount of net taxable employment income for a tax year that “reflects” qualifying foreign employment income is the total of—

(a) the total of the amount of the net taxable earnings from each employment in the tax year that reflects qualifying foreign general earnings (see subsections (2) to (5)), and

(b) the total of the amount of the net taxable specific income from each employment for the tax year that reflects qualifying foreign third party income or qualifying foreign securities income (see subsection (6)).

(2) The amount of the net taxable earnings from an employment in a tax year that “reflects” qualifying foreign general earnings is—

(a) the amount of the taxable earnings from the employment in the tax year that are qualifying foreign general earnings, minus

(b) the amount of the qualifying deductions.

(3) If the amount calculated under subsection (2) is nil or a negative amount, then none of the net taxable earnings from the employment in the tax year reflect qualifying foreign general earnings.

(4) If the foreign employment relief claim is for the qualifying year, the amount of the qualifying deductions is the proportion of the total deductions that is the same as the proportion of the claim year taxable earnings that are qualifying foreign general earnings.

(5) If the foreign employment relief claim is for a subsequent tax year, the amount of the qualifying deductions is the amount resulting from the following steps—

• Step 1

  Deduct the claim year taxable earnings from the total deductions.

  If the result is nil or a negative amount, there are no qualifying deductions.

• Step 2

  Deduct any other taxable earnings that are not qualifying foreign general earnings.

  If the result is nil or a negative amount, there are no qualifying deductions.

(6) The proportion of the net taxable specific income from an employment for a tax year that “reflects” qualifying foreign third party income or qualifying foreign securities income is the same as the proportion of the taxable specific income for the employment in that year that is qualifying foreign third party income or qualifying foreign securities income.

(7) In this section—

• “claim year taxable earnings” means the taxable earnings from the employment in the tax year that are “for” the year for which the claim is made determined in accordance with section 16 and 17;

• “total deductions” means the total amount of any deductions allowed from the taxable earnings from the employment in the tax year under provisions listed in section 327(3) to (5) (see section 11(1)).

41R Limit on relief

(1) This section sets out how to determine the limit on the amount of relief the individual is entitled to when making a foreign employment relief claim for a year for the purposes of section 41P(3).

(2) The limit is the lesser of—

(a) 30% of the relevant qualifying employment income, and

(b) £300,000.

(3) For the purposes of this section “relevant qualifying employment income” means—

(a) so much of the net taxable employment income for the tax year for which the claim is made as reflects qualifying employment income, and

(b) if the foreign employment relief claim is for a tax year that is subsequent to the qualifying year, so much of any net taxable employment income for any earlier tax year (but not any tax year before the qualifying year) as would reflect qualifying employment income if that earlier year was the year for which the claim was made.

(4) If the foreign employment relief claim is for a tax year that is subsequent to the qualifying year, the limit is reduced by the total of any amounts reflecting qualifying foreign employment income that have previously been relieved under section 41P.

(5) To determine the amounts mentioned in subsection (3)(a) and (b), apply section 41Q, but as if—

(a) the references in that section to qualifying foreign employment income were to qualifying employment income,

(b) the references in that section to qualifying foreign general earnings were to qualifying general earnings, and

(c) the references in that section to qualifying foreign third party income and qualifying foreign securities income were references to qualifying third party income and qualifying securities income.

41S Effect of claim on relief for contributions to registered pension schemes

(1) This section applies where an individual who is an active member of a registered pension scheme for the purposes of section 188 of FA 2004 (relief for contributions) makes a foreign employment relief claim for a tax year.

(2) For the purposes of sections 189(1)(a) and 190 of that Act, references to the amount of the individual’s relevant UK earnings chargeable to income tax for that year are to be read as references to that amount minus the relieved amount.

(3) The “relieved amount” is the amount of the relief to which the individual is entitled under section 41P(2) of this Act as a result of making the foreign employment relief claim.

41T Foreign employment relief ignored for purposes of determining adjusted net income

(1) Subsection (2) applies for the purpose of determining the adjusted net income under section 58 of ITA 2007 of an individual for a tax year for which the individual is entitled to relief under section 41P.

(2) The adjusted net income is to be determined as if the relief had not been deducted in calculating the individual’s net income for the tax year.

Qualifying foreign employment income U.K.

41U Qualifying foreign general earnings

(1) General earnings are “qualifying general earnings” if they are—

(a) “for” the qualifying year determined in accordance with sections 16 and 17,

(b) if the qualifying year is a split year as respects the individual, attributable to the UK part of the year, and

(c) from an employment the duties of which are performed wholly or partly outside the UK during the qualifying year.

(2) Any attribution required for the purposes of subsection (1)(b) is to be done on a just and reasonable basis.

(3) Qualifying general earnings are “qualifying foreign general earnings” if they are neither—

(a) in respect of duties performed in the United Kingdom, nor

(b) from overseas Crown employment subject to United Kingdom tax (see section 41W).

(4) For the purposes of subsection (3), the extent to which qualifying general earnings are in respect of duties performed in the United Kingdom is to be determined on a just and reasonable basis.

41V Qualifying foreign third party income

(1) For the purposes of this Chapter, “third party income” is an amount that counts under Chapter 2 of Part 7A (treatment of relevant step for income tax purposes) as employment income in respect of an employment.

(2) Third party income is “qualifying third party income”—

(a) if it is in respect of an employment the duties of which are performed wholly or partly outside the UK during the qualifying year, and

(b) to the extent that the value of the relevant step that counts as employment income (see section 554Z3) is—

(i) “for” the qualifying year determined in accordance with section 554Z4(2), and

(ii) if the qualifying year is a split year as respects the individual, attributable to the UK part of the year.

(3) Any attribution required for the purposes of subsection (2)(b)(ii) is to be done on a just and reasonable basis.

(4) Qualifying third party income is “qualifying foreign third party income” to the extent that it is not in respect of duties performed in the United Kingdom.

(5) The extent to which qualifying third party income is not in respect of duties performed in the United Kingdom is to be determined on a just and reasonable basis.

41W Qualifying foreign securities income

(1) For the purpose of this Chapter, “securities income” is an amount that counts under Chapters 2 to 5 of Part 7 (employment-related securities etc) as employment income in respect of an employment (the “relevant employment”).

(2) Securities income is “qualifying securities income”—

(a) if the duties of the relevant employment are performed wholly or partly outside the UK during the qualifying year, and

(b) to the extent that it—

(i) accrues during the qualifying year, or

(ii) if the qualifying year is a split year as respects the individual, accrues during the UK part of the year.

(3) To determine when securities income accrues treat an equal amount of the securities income as accruing on each day of the relevant period determined in accordance with section 41G.

(4) But if the proportion of the securities income that would be regarded as qualifying securities income by virtue of subsection (3) is not, having regard to all the circumstances, just and reasonable, the amount of the securities income that is qualifying securities income is such amount as is just and reasonable.

(5) Qualifying securities income is wholly “qualifying foreign securities income” if the duties of the relevant employment are performed wholly outside the United Kingdom.

(6) If some, but not all, of the duties of the relevant employment are performed outside the United Kingdom—

(a) the qualifying securities income is to be apportioned (on a just and reasonable basis) between duties performed in the United Kingdom and duties performed outside the United Kingdom, and

(b) the income apportioned in respect of duties performed outside the United Kingdom is qualifying foreign securities income.

(7) But qualifying securities income from overseas Crown employment subject to United Kingdom tax is not qualifying foreign securities income.

41X Meaning of “overseas Crown employment subject to UK tax”

(1) This section explains what is meant by —

(a) qualifying general earnings “from overseas Crown employment subject to United Kingdom tax” for the purposes of section 41T(3)(b), and

(b) qualifying securities income “from overseas Crown employment subject to United Kingdom tax” for the purposes of section 41V(7).

(2) Qualifying general earnings and qualifying securities income are “from overseas Crown employment” if the earnings or income is from Crown employment (within the meaning of section 28(2)) in respect of duties performed outside the United Kingdom.

(3) Such earnings or income are to be taken as being “subject to United Kingdom tax” unless they fall within any exception contained in an order made under section 28(5) for the purposes of section 27(2).

(4) An order made under section 28(5) may also—

(a) provide for any exceptions mentioned in subsection (3) to not apply for the purposes of this section, and

(b) make exceptions for the purposes of this section.

(5) For the purposes of this section, if securities income is partly from overseas Crown employment subject to United Kingdom tax, a just and reasonable proportion of the securities income is to be taken to be from such employment.

41Y Location of employment duties

(1) Section 38 (period of absence from employment) applies for the purposes of this Chapter as if references to general earnings were to general earnings or third party income.

(2) Section 40(1) and (2) (place of performance of duties on board vessel or aircraft) applies for the purposes of this Chapter.

(3) Duties of an employment performed in the UK sector of the continental shelf in connection with exploration of exploitation activities are to be treated for the purposes of this Chapter as being performed in the United Kingdom.

(4) In subsection (3) “the UK sector of the continental shelf” and “exploration or exploitation activities” have the same meaning as in section 41 (treatment of general earnings from employment in the UK sector of the continental shelf).

Other rules for determining amounts of qualifying foreign employment income U.K.

41Z Artificial arrangements to be disregarded

(1) Any arrangements falling within subsection (2) are to be disregarded for the purposes of determining the extent to which—

(a) general earnings are qualifying general earnings;

(b) third party income is qualifying third party income;

(c) securities income is qualifying securities income;

(2) Arrangements fall within this subsection if the main purpose, or one of the main purposes of the arrangements is to enable an individual to obtain—

(a) relief under this Chapter to which they would not otherwise be entitled, or

(b) relief under this Chapter of a greater amount than that to which they would otherwise be entitled.

(3) In this section “arrangements” includes any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable).

41Z1 Limit on qualifying foreign employment income from associated employments

(1) This section applies if—

(a) the individual has associated employments from or in respect of which there is qualifying employment income, and

(b) the duties of the associated employments are not performed wholly outside the United Kingdom.

(2) There is a limit on how much of the qualifying employment income from or in respect of the associated employments is qualifying foreign employment income.

(3) The limit is the proportion of the qualifying employment income that is reasonable having regard to—

(a) the nature of, and time devoted to, the duties performed outside the United Kingdom, and those performed in the United Kingdom, and

(b) all other relevant circumstances.

(4) In this section “associated employments” means employments with the same employer or with associated employers; and section 24(5) and (6) applies for the purposes of this section.”

(2) In Schedule 8—

(a) Part 1 makes general consequential amendments;

(b) Part 2 makes consequential amendments relating to the operation of PAYE;

(c) Part 3 contains transitional provision.

(3) The amendments made by this section and the provision made by Schedule 8 have effect for the tax year 2025-2026 and subsequent tax years.