Tax Specialist for US and UK OWR Under FIG Regime |

Tax Specialist for US and UK OWR Under FIG Regime |

Tax Specialist for US and UK: OWR Under FIG Regime

Tax Specialist for US and UK on OWR Under the FIG Regime

Overseas Workday Relief is one of the most valuable income tax reliefs available to individuals newly arriving in the United Kingdom, allowing the portion of employment income that relates to duties performed outside the UK to escape UK income tax for the first four years of UK residence. The Finance Act 2025 redesigned OWR as part of the new Foreign Income and Gains regime — replacing the old remittance-basis OWR with a simpler, more accessible relief that no longer requires income to be kept offshore. For US-citizen employees arriving in the UK for the first time, OWR offers a genuine opportunity to significantly reduce UK income tax in the early years of UK residence. However, the interaction between OWR and the US tax system — specifically the foreign earned income exclusion and the foreign tax credit — is far more complex than most UK-focused employers and advisers recognize, and every tax specialist for US and UK who works across both systems finds that OWR claims are frequently structured in a way that maximizes the UK benefit while inadvertently creating additional US tax costs.

This article is written for US citizens who are in their first four years of UK residence and who perform some part of their employment duties in countries outside the UK — whether by traveling to international offices, working remotely from the US, or attending client meetings in other jurisdictions. By the end of this guide, you will understand how OWR works under the new FIG regime, how a tax specialist for US and UK optimizes the claim across both the UK and US returns, and the most common mistakes that cost US-citizen employees real money when OWR and the US tax system interact incorrectly.

What Is a Tax Specialist for the US and the UK?

A tax specialist for the US and the UK is a cross-border tax professional with qualifications and active practice in both US federal tax and UK income tax, able to model how a single employment income event — such as an overseas workday — is treated simultaneously on the UK self-assessment return and the US Form 1040. Furthermore, in the OWR context, this requires combining knowledge of the Finance Act 2025 FIG regime provisions — the qualifying new UK resident test, the relevant foreign income definition, the four-year relief window, and the new payroll practice requirements — with the US rules for the foreign earned income exclusion under IRC Section 911 and the foreign tax credit on Form 1116. Specifically, the most important and most consistently missed interaction is between the OWR claim and the foreign earned income exclusion: where a US-citizen employee claims OWR to exempt overseas workday income from UK tax, that same income remains fully US-taxable — and if the FEIE is used to reduce the US tax on that income, the foreign tax credit for UK income tax paid on the same income is reduced, creating a complex three-way interaction between OWR, the FEIE, and the foreign tax credit that requires simultaneous modelling across both returns to optimise the total combined tax position.

The HMRC guidance on Overseas Workday Relief under the new FIG regime is at https://www.gov.uk/guidance/overseas-workday-relief. The IRS guidance on the foreign earned income exclusion is at https://www.irs.gov/individuals/international-taxpayers/foreign-earned-income-exclusion.

Why OWR and the FIG Regime Matter More in 2026

The New FIG Regime Replaced the Remittance Basis OWR

Under the old non-domicile regime, Overseas Workday Relief was available only to individuals who claimed the remittance basis of taxation — a separate regime available to non-UK-domiciled individuals who paid the remittance basis charge and kept their overseas income outside the UK. Furthermore, the old OWR required the individual to maintain a separate offshore account for the overseas workday income, and only income that was both earned for overseas duties and kept outside the UK escaped UK income tax. Consequently, the old OWR was administratively complex and practically inaccessible for many employees, since maintaining segregated offshore accounts for the overseas income portion created banking and payroll complications that many employers were unwilling to manage. The Finance Act 2025 FIG regime reformed OWR by removing the remittance basis requirement — so that overseas workday income is exempt from UK tax even if the individual brings the money into the UK — and extending the relief to all qualifying new UK residents regardless of domicile. Additionally, relief is now available for the first four tax years of UK residence under the FIG regime, up from the three years the old remittance-basis OWR provided in certain cases.

The Qualifying New Resident Test for OWR Eligibility

To qualify for OWR under the FIG regime, the individual must be a qualifying new UK resident — defined as someone who has not been a UK resident in any of the ten tax years immediately preceding the current year of assessment. Furthermore, for a US citizen relocating to the UK from the United States who has never previously been a UK resident, the qualifying new resident test is met in the year of arrival and for the following three tax years, providing a four-year window of OWR eligibility from the first year of UK residence. Consequently, the OWR eligibility window for a newly arrived US employee who starts UK residence in April 2025 runs from 2025-26 through 2028-29 — covering up to four full UK tax years of employment income during which overseas workday income is exempt from UK tax. The HMRC technical guidance on the qualifying new resident test for FIG purposes is at https://www.gov.uk/guidance/overseas-workday-relief.

OWR and the US Citizens' Tax Position

For a US citizen, the OWR-exempt overseas workday income has a specific interaction with the US tax system that does not exist for non-US employees claiming OWR. Furthermore, the income that OWR exempts from UK income tax is — by definition — income earned for duties performed outside the UK, which typically means it was earned. At the same time, the employee was physically present in a third country or in the United States. Specifically, where the duties were performed in the United States, the US-source income may be eligible for the foreign earned income exclusion under IRC Section 911 where the employee meets the bona fide residence test or the physical presence test — but claiming the FEIE reduces the foreign tax credit for UK income tax available against the same income, since the FEIE income is excluded from US gross income before the foreign tax credit limitation is calculated. Consequently, a tax specialist for the US and the UK must model the combined UK and US tax position for overseas workday income specifically, since the optimal US treatment (FEIE or foreign tax credit) depends on the relative UK and US tax rates applicable to that income in the relevant year. According to https://www.aicpa.org, the interaction between OWR, the FEIE, and the foreign tax credit is one of the most technically challenging areas in cross-border employment income planning for U.S. citizen employees arriving in the UK.

How OWR Works Under the New FIG Regime

Calculating the OWR-Exempt Portion of Employment Income

The OWR-exempt portion of employment income is the proportion of the total employment income that relates to duties performed outside the United Kingdom — calculated on a day-by-day basis, counting the number of days on which the employee performed their employment duties in a country other than the UK as a fraction of the total working days in the year. Furthermore, the numerator is the number of overseas working days — days on which some part of the employment duties was performed outside the UK, excluding travel days from the UK to the overseas location — and the denominator is the total number of working days, including both UK and overseas working days. Additionally, the Finance Act 2025 FIG provisions clarify that the OWR relief is applied to the employment income chargeable in the UK — broadly, the total remuneration including bonuses, equity awards, and benefits attributable to the employment for the tax year — with the overseas proportion of that income exempt from UK income tax entirely, regardless of whether the income was received in the UK or kept offshore. Consequently, a newly arrived US employee earning £300,000 per year who works 40 days outside the UK in a 250-working-day year has an OWR-exempt proportion of 40/250, exempting £48,000 of employment income from UK income tax and producing a UK income tax saving of approximately £21,600 at the 45% additional rate.

The New Payroll Practice Requirements Under the FIG Regime

The Finance Act 2025 FIG regime introduced new payroll practice requirements for OWR claims, under which employers operating UK PAYE must implement a specific payroll treatment that reflects the OWR exemption in real-time rather than claiming the relief only through the year-end self-assessment return. Furthermore, the practical application of the new payroll requirement involves the employer applying a modified PAYE code that reflects the estimated proportion of overseas workdays for the year — or altering a shadow payroll that accounts for the OWR exemption alongside the standard PAYE payroll. Additionally, many UK employers are not yet compliant with the new payroll practice requirement for FIG OWR claims, meaning that employees who qualify for OWR may be paying the full UK income tax on their overseas workday income through PAYE during the year and claiming the relief as a repayment through the self-assessment return — a cash flow disadvantage that the new payroll requirement was designed to address. The HMRC guidance on the payroll practice for FIG OWR is at https://www.gov.uk/guidance/overseas-workday-relief.

The Four-Year FIG Relief Window and Planning

The OWR window under the FIG regime runs for the first four tax years of qualifying new UK residence — the year of arrival and the following three tax years. Furthermore, the four-year window is fixed from the qualifying date. It cannot be extended, meaning that employees who arrive mid-year in the UK get a partial year of relief in the first year and three full years thereafter, with the total OWR benefit depending on how many overseas working days they accumulate during the window. Additionally, the four-year FIG relief window applies equally to foreign income and gains on investments — the broader FIG regime also exempts foreign-source investment income from UK tax for new UK residents during the first four years — but the OWR and FIG investment relief are separate claims, each requiring different documentation and treatment on the UK self-assessment return. Consequently, a US-citizen employee who arrives in the UK in October 2025 has a partial 2025-26 year of OWR and FIG investment relief, followed by full relief in 2026-27, 2027-28, and 2028-29 — with the combined UK tax saving depending on the volume of overseas working days and foreign investment income in each year.

OWR and the US Return: How a Tax Specialist Optimises

Step 1 — Establish the exact number of overseas working days for each tax year.

Maintain a day-by-day travel log throughout the year recording every day on which employment duties were performed outside the United Kingdom — including the country of performance, the nature of the duties, and the number of hours worked on overseas duties on each day. Furthermore, confirm HMRC's treatment of transit days, working days that involve partial UK and overseas duties, and training days outside the UK — since each of these categories has a specific treatment under the FIG OWR provisions that differs from the old remittance basis OWR analysis. Additionally, retain documentary evidence for each overseas working day — travel records, hotel receipts, meeting calendars, client correspondence — since HMRC routinely enquires into OWR claims and requires specific evidence of each overseas working day claimed. The HMRC guidance on OWR evidence requirements is at https://www.gov.uk/guidance/overseas-workday-relief.

Step 2 — Identify the country in which each overseas duty was performed.

For each overseas working day, confirm the country in which the duty was performed — since the US tax treatment of the overseas workday income depends critically on the country of performance. Furthermore, where duties were performed in the United States, the income attributable to those days is US-source income that may be eligible for the foreign earned income exclusion under IRC Section 911 where the physical presence test or bona fide residence test is met. Additionally, where duties were performed in a third country — neither the UK nor the United States — the income is foreign source income for both UK and US purposes, and the US tax treatment must be modeled separately from the US-source income component. Consequently, the overseas working day log must record not just the total overseas days but the country-by-country breakdown, since the US tax allocation depends on the source of the income, not just its UK-exempt status under OWR. The IRS FEIE guidance is at https://www.irs.gov/individuals/international-taxpayers/foreign-earned-income-exclusion.

Step 3 — Model the FEIE vs foreign tax credit trade-off for US-source OWR income.

For the portion of OWR income attributable to days worked in the United States, model the US tax position under two approaches: claiming the FEIE to exclude the income from US gross income, and not claiming the FEIE but instead relying on the foreign tax credit for UK income tax paid on the same income. Furthermore, where OWR has exempted the income from UK income tax — meaning no UK tax was paid on the overseas workday income — there is no foreign tax credit available to offset the US tax on that income, and the choice is between the FEIE and paying US federal income tax at the marginal rate on the full US-source OWR income. Additionally, where the employee has both UK-taxed income (from UK working days) and OWR-exempt income (from overseas working days), the FEIE election affects the foreign tax credit limitation for the UK-taxed income as well — since the FEIE reduces the earned income base on which the foreign tax credit limitation is calculated, potentially reducing the available credit for UK income tax on the UK working day income.

Step 4 — Prepare the UK self-assessment return with the OWR claim.

Calculate the OWR-exempt portion of employment income using the overseas working day fraction — overseas working days divided by total working days — and apply the fraction to the total employment income, equity awards, and other remuneration for the tax year to determine the exempt amount. Furthermore, claim the OWR relief on the self-assessment return as a deduction against employment income, with the overseas working day fraction and the supporting documentation retained to respond to any HMRC inquiry. Additionally, review the PAYE tax paid during the year to confirm whether the employer has applied the OWR exemption through the payroll — and where the full UK income tax has been deducted through PAYE on the overseas workday income, confirm whether a repayment claim is appropriate through the self-assessment return for the over-deducted PAYE.

Step 5 — Prepare the US return with the foreign tax credit and OWR interaction.

Report the full worldwide employment income on the US Form 1040 as wages or salary — including the OWR-exempt portion that was not subject to UK income tax — and apply the FEIE or foreign tax credit election to minimize the US federal income tax on the combined employment income. Furthermore, where the foreign tax credit is used for UK income tax on the UK working day income, calculate the foreign tax credit limitation on Form 1116 using the income basket allocation methodology — separating UK-source income from US-source income and third-country income. Additionally, ensure that OWR-exempt income is included in the US income base for Form 1116 limitation purposes, even if it was not UK-taxed, since the US taxes the full worldwide income of its citizens regardless of OWR exemption. The IRS Form 1116 guidance is at https://www.irs.gov/forms-pubs/about-form-1116.

Case Study: US Executive in London, OWR Under FIG Regime

Our team was engaged by a US citizen who moved to London in April 2025 to take up a senior role at a global financial services firm. His total remuneration for the 2025-26 tax year was £420,000 — comprising a base salary of £280,000, a cash bonus of £100,000, and a carried interest allocation of £40,000. He worked 38 days outside the UK during the year — 22 days in New York at the firm's US head office, 8 days in Frankfurt at the European headquarters, and 8 days in Singapore at the Asia-Pacific office. His total working days for the year were 230.

The OWR-exempt fraction was 38/230, resulting in an OWR-exempt portion of £69,391 of the total remuneration. Furthermore, the UK income tax saving at 45% on the exempt portion was approximately £31,226 — a meaningful benefit in the first year of UK residence, with the four-year OWR window potentially saving £120,000 or more over the full period at similar income levels. Additionally, the country-by-country breakdown was essential for the US return: the 22 New York days produced US-source income of approximately £40,159 (22/230 of total remuneration), the 8 Frankfurt days produced approximately £14,608 of non-US non-UK foreign source income, and the 8 Singapore days produced approximately £14,608 of further non-US non-UK foreign source income.

For the US return, we modelled two approaches for the New York income component. Furthermore, using the FEIE to exclude the $50,600 equivalent of New York income (converted at the relevant exchange rate) saved approximately $18,700 of US federal income tax — but reduced the foreign tax credit limitation for the UK income tax on the UK working day portion, ultimately producing a higher combined UK and US tax than not claiming the FEIE. Additionally, the optimal approach for this client was to not claim the FEIE for the New York income, instead paying US federal income tax at the 37% rate on the US-source component while maximising the foreign tax credit for UK income tax on the UK working day income — producing a net US federal income tax for the year of approximately $12,800 after the credit. We also established a going-forward day-counting protocol and payroll communication arrangement with the employer's global mobility team to ensure the OWR fraction was applied in real time through the PAYE calculation from year two.

Common Mistakes with OWR for U.S. Citizen Employees

Mistake 1 — Claiming the FEIE for OWR Income Without Modeling the Impact

The most common US-side mistake for US-citizen employees claiming OWR is reflexively claiming the FEIE for all overseas workday income without modelling the interaction with the foreign tax credit for UK income tax on the UK working day income. Furthermore, claiming the FEIE for the OWR income reduces the foreign tax credit limitation for the UK income tax on the remaining UK-taxed income, potentially leaving significant UK income tax uncredited and producing a higher combined tax than simply paying US federal income tax on the OWR income at the marginal rate. The correct approach requires a year-specific model that calculates the combined UK and US tax under both the FEIE and non-FEIE approaches before electing the treatment on the US return. IRS FEIE guidance is at https://www.irs.gov/individuals/international-taxpayers/foreign-earned-income-exclusion.

Mistake 2 — Using an Annual Average Rate Instead of Daily Rates for the Overseas Fraction

The OWR overseas fraction must be calculated on an accurate working-day basis, using actual days of overseas duty performance rather than an estimated annual average or a percentage based on salary allocation. Furthermore, many employees estimate their overseas working day fraction at the start of the year and then fail to update it with actual day counts, producing an inaccurate OWR claim that either under-claims the relief or overclaims it, creating an HMRC inquiry risk. The correct approach requires maintaining a contemporaneous daily travel log from the first day of UK residence, with the actual overseas day count confirmed at the year-end before the self-assessment return is filed.

Mistake 3 — Not Claiming OWR for Equity Awards and Bonuses

OWR applies to the total employment income for the year — including equity awards, bonuses, carried interest allocations, and other remuneration — not just to the base salary. Furthermore, many employers and employees assume that OWR applies only to the cash salary element, overlooking the proportional OWR exemption for equity award income, annual bonuses, and long-term incentive plan vesting, which may represent the largest components of total remuneration. The correct approach requires applying the overseas working day fraction to all elements of employment income for the tax year, with particular attention to equity awards that vest during the OWR window and that may have a large OWR-exempt component. HMRC OWR guidance is at https://www.gov.uk/guidance/overseas-workday-relief.

Mistake 4 — Not Coordinating OWR with the FIG Investment Relief

The FIG regime also exempts foreign-source investment income — dividends, interest, and capital gains on foreign assets — from UK income tax for qualifying new UK residents during the first four tax years. FurtheU.S. citizencitizen employees claiming OWR during the FIG window are also eligible for the FIG investment income relief on their US portfolio income. This separate and cumulative benefit can significantly reduce UK income tax on the combined employment and investment income during the four-year window. The correct approach requires a tax specialist for the US and the UK to model both the OWR employment income relief and the FIG investment income relief simultaneously, since the two reliefs interact differently with the US tax system and the optimal US return treatment differs between the two categories of income.

Mistake 5 — Losing OWR Eligibility Through a Prior UK Residence Period

OWR eligibility under the FIG regime requires the individual not to have been a UK resident in any of the ten preceding tax years. Furthermore, US-citizen employees who previously lived in the UK — for a university education, an earlier work posting, or any other reason — in the ten tax years before their current UK residence period are not qualifying new UK residents and are not eligible for OWR under the FIG regime. The correct approach requires confirming the full UK residence history for the ten years preceding the year of arrival before relying on OWR eligibility, since even a single year of UK residence in the preceding ten years disqualifies the individual from the FIG new resident status.

Mistake 6 — Not Including OWR-Exempt Income on the US Return

The OWR exemption removes overseas workday income from UK tax — but the IRS taxes US citizens on their worldwide income regardless of UK tax relief. Furthermore, some non-specialist preparers exclude OWR-exempt income from the US return on the basis that it was not UK-taxed, resulting in an understatement of US gross income and a risk of a US accuracy-related penalty. The correct approach requires including the full worldwide employment income — including the OWR-exempt overseas workday portion — in US gross income on Form 1040, then applying the FEIE or foreign tax credit to reduce the US tax, with the foreign tax credit limited to the UK income tax actually paid on the UK-taxed portion of the income.

Get in Touch

At US-UK Tax, our team of Chartered Tax Advisers (CTA), Enrolled Agents (EA), and Certified Public Accountants (CPA) — members of the Chartered Institute of Taxation (CIOT) and the American Institute of CPAs (AICPA) — is the tax specialist for US and UK practice that US-citizen employees arriving in the UK turn to when their OWR claim and US return must be optimised simultaneously. Furthermore, we maintain the overseas working day log structure, calculate the OWR fraction across all remuneration components, model the FEIE versus foreign tax credit election for each year of the four-year FIG window, coordinate with the employer's global mobility team on the PAYE payroll treatment, and prepare both the UK self-assessment return and the US Form 1040 as a coordinated annual engagement. We also advise on the FIG investment income relief for US portfolio income during the four-year window, ensuring the combined employment and investment relief is maximised across both tax systems.

Contact our team today to begin a confidential review of your OWR eligibility and US tax interaction. Email hello@us-uktax.com, call 0333-8807974, or visit https://www.us-uktax.com/contact/ to book a consultation.

Conclusion

Overseas Workday Relief under the new FIG regime is one of the most valuable UK income tax reliefs available to newly arrived US-citizen employees in the UK, exempting the overseas workday proportion of employment income — including bonuses and equity awards — from UK income tax for up to four years. Furthermore, the interaction between OWR and the US tax system — specifically the trade-off between the foreign earned income exclusion and the foreign tax credit for UK income tax on the remaining UK-taxed income — requires a year-specific model that only a tax specialist for US and UK who works across both systems can produce accurately, since the optimal US election changes depending on the relative UK and US rates and the proportion of overseas versus UK working days in each year. Moreover, the FIG regime's removal of the remittance basis requirement makes OWR more accessible than the old non-dom OWR. Still, the new payroll practice requirements and the country-by-country day analysis create new compliance complexities that employers and employees must address from day one of UK residence.

The three most important actions for any US citizen arriving in the UK for the first time are: first, confirm OWR eligibility by reviewing the UK residence history for the preceding ten tax years — since even one prior year of UK residence disqualifies the individual from the FIG new resident status; second, establish a contemporaneous daily overseas working day log from the first day of UK residence, with country-by-country records to support both the UK OWR claim and the US source allocation; and third, engage a cross-border adviser to model the FEIE versus foreign tax credit election for each year of the four-year OWR window before the first UK self-assessment return is filed. Contact US-UK Tax at hello@us-uktax.com or call 0333-8807974 to begin a confidential OWR review today.

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FAQs

Q: Who qualifies for Overseas Workday Relief under the FIG regime?

Qualifying new UK residents — individuals who have not been UK residents in any of the ten preceding tax years — are eligible for OWR in their first four tax years of UK residence. US citizens arriving from the United States who have never previously been UK residents straightforwardly qualify under this test.

Q: Does OWR exempt income from both UK and US tax?

OWR exempts the overseas workday proportion of employment income from UK income tax only. The IRS taxes US citizens on worldwide income regardless of UK tax relief. The OWR-exempt income must be included in US gross income on Form 1040, with the FEIE or foreign tax credit applied to reduce the US tax.

Q: How is the OWR fraction calculated under the FIG regime?

The overseas working day fraction is the number of days on which employment duties were performed outside the U.K. divided by the total number of working days in the year. The fraction applies to all employment income — salary, bonuses, equity awards, and other remuneration — not just to the base salary component.

Q: Should a US citizen claim the FEIE for OWR income?

Not automatically. Claiming the FEIE for overseas workday income reduces the foreign tax credit limitation for UK income tax on that income, potentially leaving UK tax uncredited. The optimal election must be modeledyear by year, balancing the FEIE savings against the foreign tax credit costs.

Q: Does OWR apply to equity award income?

Yes. OWR applies to the total employment income for the year, including equity awards vesting during the FIG window. The overseas working day fraction applies to all remuneration components. This can produce a significant OWR exemption on large equity vestings that occur during the first four years of UK residence.

Q: How long does the OWR window last under the FIG regime?

The OWR window runs for the first four tax years of qualifying new UK residence — the year of arrival and the three following tax years. A partial year applies in the year of arrival. The window cannot be extended and does not restart if the individual leaves and re-enters the UK within the ten-year lookback period.