Overseas Workday Relief Cap 2025-26: Americans in London

For 2025-26 — the first full year of the reformed regime, filed by 31 January 2027 — the overseas workday relief cap 2025-26 restricts relief to the lower of 30% of qualifying employment income and £300,000. Relief is not automatic: it must be elected and separately quantified inside the Self Assessment return, and no United States provision mirrors it.

For an American who moved to London during or shortly before 2025-26, that sentence contains three separate problems. The cap is arithmetic, and on a seven-figure banking or fund package it almost always binds. The election is procedural, and a return that claims the relief without the election is simply wrong. And the interaction with the US foreign tax credit is structural: every pound of UK tax that overseas workday relief removes is a pound that can never reach Form 1116. This guide deals with all three, in the order the return is actually prepared. Jungle Tax prepares these returns on both sides of the Atlantic, and the errors below are the ones we correct most often.

What the 2025-26 return has to prove that the old OWR return did not

The relief that ran to 5 April 2025 was a creature of the remittance basis. It relieved earnings for non-UK duties only so long as they were paid into, and kept in, a qualifying offshore account, and it ran for the year of arrival plus two. Banking arrangements did most of the work; the return recorded the consequence.

The reformed relief, set out in HMRC's Employment Income Manual at EIM43555, inverts that. The offshore account requirement is gone entirely: an employee can now receive qualifying foreign employment income into a UK or an overseas bank account without affecting the relief available. What replaces it is a set of conditions and a quantum that have to be established on the face of the tax return.

• Status must be established — qualifying new resident, tested against a ten-year non-residence history.
• An election must be made for the tax year, with its own consequences for allowances.
• The relief must be quantified, not merely asserted, and then tested against the annual financial limit.
• The apportionment must be evidenced, because banking is no longer doing any evidential work.

In other words, the compliance burden moved from the bank statement to the return. That is why first-year claims fail on process rather than on principle.

Who counts as a qualifying new resident for OWR?

The eligibility limbs, set out at EIM43560, are narrow and mechanical. All of them must be satisfied:

• The individual is UK resident for the tax year under the Statutory Residence Test.
• The individual was not UK resident at any point in any of the ten tax years immediately preceding that year. This is a continuous ten-year clean period, not an aggregate. A single year of UK residence eight years ago is fatal.
• The individual is not disqualified. Members of the House of Commons and the House of Lords cannot be qualifying new residents for any part of a tax year.

Four consecutive tax years, not four years of claims

An individual who becomes a qualifying new resident by becoming UK resident for a tax year continues to be a qualifying new resident in any of the next three tax years for which they are UK resident. The maximum window is therefore four tax years. It is worth being precise about what that means in practice, because it is a common source of client misunderstanding:

• The four-year window runs from the first year of residence and is not extended by a year of non-residence in the middle. A year spent outside the UK inside the window is a year of the window consumed.
• Relief is claimed year by year. Skipping a year does not push the fourth year outward.
• The window can be re-earned later in life, but only by re-establishing a fresh ten-year period of non-residence.

For a client who moved to London in, say, August 2025, 2025-26 is year one of four. Split-year treatment, if it applies, changes which earnings fall into the UK part of the year, but it does not add a fifth year.

How does the overseas workday relief cap 2025-26 actually bite?

This is where sophisticated packages diverge sharply from the illustrations on generalist accounting sites. The financial limit is set out at EIM43600: relief for a qualifying year is the lower of 30% of the relevant qualifying employment income for that year arising from the employment to which the claim relates and which is charged to tax, and £300,000.

Two limbs, and they bind at different points on the pay scale.

When does the 30% limb bite?

The 30% limb bites the moment the proportion of non-UK workdays exceeds 30% of total workdays — regardless of how large or small the package is. An executive with 40% overseas duties gets relief on 30 percentage points, not 40. An executive with 25% overseas duties is unaffected by this limb, because the underlying apportionment is already below the ceiling.

That single observation reorders the analysis for most globally mobile finance clients. The relief is no longer a straight function of travel; it is a function of travel up to a ceiling, after which additional overseas duties produce no further UK saving whatever.

When does the £300,000 ceiling bite?

The absolute ceiling of £300,000 equals the 30% limb precisely when relevant qualifying employment income is £1,000,000. Above that level, the monetary ceiling is always the operative constraint. This is exactly the population we act for: a managing director's total package, a fund principal's salary plus performance bonus plus vesting employment-related securities, will frequently sit well above £1m.

Note also what feeds the base. Relevant qualifying employment income is a net taxable figure for the tax year, and the relief extends beyond cash salary to earnings, employment-related securities and employment income provided through third parties. Vesting restricted stock units are therefore in scope on both sides of the calculation — they enlarge the 30% base and they are capable of being relieved. Deductions that reduce net taxable employment income, including relievable pension contributions, reduce the base and therefore the 30% limb.

Worked example: the London-based fund principal

Assume a US citizen who became UK resident in 2025-26 after eleven years outside the UK. Qualifying employment income for the year, net, is £1,800,000: salary £250,000, performance bonus £900,000, and £650,000 of employment-related securities vesting. Workday records show 45% of duties performed outside the UK.

Step	Computation	Amount
Relevant qualifying employment income	Net taxable employment income for 2025-26	£1,800,000
Unrestricted apportionment	45% of £1,800,000	£810,000
30% limb	30% of £1,800,000	£540,000
Absolute ceiling	Statutory monetary limit	£300,000
Relief available	Lower of the three	£300,000
Relief lost to the cap	£810,000 less £300,000	£510,000

At additional rate, £300,000 of relief is worth roughly £135,000 of UK income tax. Meanwhile £510,000 of overseas-duty earnings that would once have escaped UK tax now does not. Two consequences follow that the return preparer must handle:

• There is no carry-forward. Relief lost to the cap in one qualifying year cannot be carried to another. A client whose travel is heavily front-loaded into one year cannot smooth it.
• National Insurance is untouched. Overseas workday relief is an income tax relief. Class 1 NIC follows social security coordination and any applicable certificate of coverage, not the OWR apportionment. Relief on the income tax line does not follow through to the NIC line.

Different rules can apply to individuals who became UK resident before 6 April 2025 under the transitional provisions; those should be checked against the specific manual guidance for that cohort rather than assumed from the reformed rules described here.

Election plus quantified claim: what the Self Assessment return must contain

The mechanics are a two-step process on the residence pages of the return, and the two steps are genuinely distinct. First, an election for the qualifying year. Second, a quantified claim for the relief actually taken, supported by the figures the financial limit is calculated from. A return that ticks the election but leaves the quantum blank does not claim the relief; a return that reduces taxable employment income without the election is not a valid claim at all.

What the election costs

Making the election for a tax year has consequences beyond the relief itself. For that year the individual gives up:

• the income tax personal allowance;
• the capital gains tax annual exempt amount; and
• the ability to claim relief for certain foreign income and foreign capital losses for the year.

For our target population this is usually immaterial and should be said plainly rather than treated as a caveat. Where adjusted net income exceeds £125,140 the personal allowance has already tapered to nil, so surrendering it costs nothing. The annual exempt amount is a small figure against a seven-figure package. The loss of foreign loss relief is the limb worth actually checking: a client sitting on realised foreign capital losses in the same year should have the two positions modelled before the election goes in.

Evidence HMRC expects behind the apportionment

Because the offshore banking requirement has gone, the apportionment itself is the exposed point. A defensible 2025-26 file contains, at minimum:

• a contemporaneous day-by-day workday record for the tax year, distinguishing UK workdays, non-UK workdays, non-working days and travel days;
• corroboration — travel itineraries, boarding passes, calendar exports, expense claims — capable of surviving an enquiry years later;
• a written apportionment methodology, applied consistently to salary, bonus and each securities vesting;
• for bonuses and vesting awards, a mapping of the period the award relates to, not the date it was paid, because apportionment follows the duties performed in the relevant period.

Reconstructing this in January 2027 from memory is where most enquiries begin. Build it during the year.

The amendment window

The election and claim belong in the 2025-26 return due by 31 January 2027. Where a figure needs correcting, the ordinary Self Assessment amendment window — twelve months from the filing deadline — applies. That timing matters enormously to the US side, for reasons set out below.

PAYE was only provisional: reconciling the section 690 notification

From 6 April 2025 the old process of applying for a section 690 direction was replaced by an annual online notification, under which an employer can operate PAYE on a proportion of an employee's income as soon as HMRC acknowledges the notification. HMRC's guidance on the process is published on GOV.UK. Two points follow for the return preparer.

First, a notification must be made for each tax year; directions issued before 6 April 2025 ceased to have effect. An employer that assumed a standing direction survived will have operated PAYE on the wrong basis for the whole of 2025-26.

Second, whatever the payroll did during the year is provisional. The employee's own return is where the position is settled, and where the annual financial limit is applied. Where payroll delivered relief on a higher percentage than the return can ultimately support, the return produces an underpayment payable by 31 January 2027 — frequently a six-figure balancing payment that the client has not budgeted for. Modelling that number in the autumn, not the week before the deadline, is part of preparing the return properly.

Why OWR narrows the UK tax your US foreign tax credit can draw on

This is the section that generalist UK pages on this topic do not have, and it is the one that decides whether the relief is worth having at all for a US citizen. The reasoning is simple and the consequence is unforgiving.

There is no US mirror of overseas workday relief

A US citizen is taxed on worldwide income irrespective of residence, and the United States has no provision that exempts employment income by reference to where the duties were performed for a newly arrived resident. The earnings that the UK relieves under OWR remain fully taxable in the US. The relief is therefore one-sided: it reduces the UK liability and leaves the US liability exactly where it was.

The Form 1116 arithmetic

The foreign tax credit is a credit for foreign income taxes paid or accrued, claimed on Form 1116, and it is limited: the credit cannot exceed US tax liability multiplied by the ratio of foreign source taxable income to total taxable income. The IRS sets the limitation out on its guidance on figuring the credit.

Overseas workday relief attacks the numerator of the credit itself — the foreign tax paid. In the worked example above, roughly £135,000 of UK tax simply ceases to exist. A US citizen in the UK whose UK effective rate comfortably exceeded the US rate would previously have been in excess credit, generating carryforwards. Strip out the UK tax and that cushion thins. The practical outcome for a large minority of clients is that the UK saving is partly or wholly recaptured as residual US tax in the same year, and the client's excess-credit carryforward position quietly deteriorates for future years.

The honest framing for a sophisticated client is this: overseas workday relief is unambiguously valuable where the individual is already in excess limitation (paying residual US tax anyway is not made worse by having less UK tax), and materially less valuable — sometimes close to worthless in cash terms — where the individual sits on large unused UK tax credits that were shielding US liability. That determination requires the US and UK computations to be run together, not sequentially by two unconnected firms.

Where the duties are performed changes everything

Sourcing, not just quantum, drives the answer. Compensation for services is sourced where the services are performed. The non-UK workdays that generate the OWR claim split into two very different populations:

• US workdays. Income for services performed in the United States is US source. US source income does not sit in the numerator of the standard foreign tax credit limitation, so relieving the UK tax on it removes UK tax without unlocking any US credit. The treaty's special rules for US citizens resident in the UK govern which state gives relief in these cases, and they must be applied to the specific facts — this is the single most commonly mishandled item on a US-UK banker's return.
• Third-country workdays. Income for services performed in, say, Singapore or Dubai is foreign source for US purposes and generally sits in the general category basket — but if the UK has relieved it under OWR and the third country has not taxed it, there may be little or no foreign tax to credit against it.

Timing: a UK claim settled after the US return is filed

The UK tax year to 5 April 2026 is reported by 31 January 2027, and the balancing payment falls due the same day. The US calendar years 2025 and 2026 will already have been filed — or extended — by then. Two mechanical points:

• Taxpayers on the cash basis for foreign taxes credit UK tax in the US year of payment; those who have made the irrevocable election to credit taxes on the accrual basis match them to the UK year they relate to. Which one applies determines whether the 2025-26 OWR outcome lands on the US 2025, 2026 or 2027 return.
• Where a UK figure changes after a US return is filed — a payroll correction, an amended apportionment, an HMRC adjustment — the US return usually needs amending. The refund limitation period for claims relating to foreign tax credits is significantly longer than the ordinary three-year period, which is often the client's rescue.

The foreign earned income exclusion is not a workaround

Clients frequently ask whether the exclusion under section 911 solves the problem. It does not, at this income level. The exclusion is capped at an inflation-indexed figure well under £110,000 equivalent, it applies only to earned income for services performed outside the United States, it requires a foreign tax home plus either bona fide residence or physical presence, and taxes allocable to excluded income cannot also be credited. On a seven-figure package it is a rounding error at best and a trap at worst, because electing it and later revoking it carries a five-year lockout absent IRS consent.

State exposure

Finally, a US citizen who has not cleanly severed residency from a high-tax state may face a state return that recognises neither overseas workday relief nor, in most cases, any credit for UK tax at all. State residency should be addressed on its own terms as part of preparing the year, not discovered afterwards.

US and UK treatment side by side

Feature	UK (HMRC)	US (IRS)
Basis of taxation for the individual	Residence, under the Statutory Residence Test	Citizenship — worldwide, regardless of residence
Relief for non-resident-country workdays	Overseas workday relief for qualifying new residents	No equivalent relief
Annual limit on the relief	Lower of 30% of qualifying employment income and £300,000	Not applicable
Duration	Up to four consecutive tax years from first year of residence	Not applicable
Offshore account required	No — requirement removed from 6 April 2025	Not applicable; foreign accounts still reportable on FBAR and Form 8938
How claimed	Election plus quantified claim in the Self Assessment return	Foreign tax credit on Form 1116, or exclusion on Form 2555
Cost of claiming	Personal allowance, CGT annual exempt amount and certain foreign loss relief for the year	Credit limited by foreign source income ratio; excluded income cannot also generate credit
Filing deadline for the 2025-26 UK year	31 January 2027	Reported on the relevant US calendar year return — 15 April, with extensions
Effect on National Insurance / social security	None — income tax relief only	Governed by the US-UK totalisation agreement, not by OWR

Errors we correct most often on first-year OWR returns

• Claiming the relief without the election. The reduction appears in the employment pages, the residence pages are silent, and the claim is invalid.
• Applying the cap to gross rather than net taxable employment income, which overstates the 30% limb and therefore the relief.
• Treating the payroll percentage as the answer. The notification basis is provisional; the return applies the statutory limit.
• Apportioning bonuses by payment date rather than by the period of duties to which the award relates.
• Ignoring employment-related securities in the base, which understates both the 30% limb and the relief available.
• Assuming a ten-year clean history without testing the Statutory Residence Test for every one of the ten preceding years. A single split year of UK residence breaks eligibility outright.
• Preparing the UK return in isolation, then discovering the US credit consequence in April. The two computations are one exercise.

How this sits alongside your other 2025-26 claims

Overseas workday relief does not stand alone. Most of our clients making an OWR election for 2025-26 are also considering the four-year foreign income and gains regime for their non-employment income, and many arrived under assignment arrangements with their own reporting mechanics. We have covered those separately: the first FIG regime claim on the 2025-26 return, the abolition of the non-dom regime for US-connected high-net-worth individuals, and shadow payroll and Appendix 6 assignees. Where an individual is claiming under more than one head in the same year, the interactions need to be modelled once, across both jurisdictions, before any election is finalised.

If earlier US years are unfiled — a common position for accidental Americans and for executives who relocated without US advice — the OWR question is downstream of a bigger one. Our IRS streamlined filing work brings those years current first, so that the credit position for 2025-26 is calculated against a compliant base rather than a guess. For clients whose affairs span employment income, carried interests and family structures, our high-net-worth and US-UK tax accountants teams prepare both returns in a single file. Further reading is collected in our guides library.

Preparing your 2025-26 return

The 2025-26 return is the first real test of the reformed relief, and the first year in which the cap arithmetic, the election mechanics and the US credit consequence all have to be resolved in the same file. Getting the UK number right while ignoring what it does to Form 1116 is not a saving; it is a transfer. If you moved to London and are facing a 31 January 2027 deadline with a seven-figure package and US citizenship, contact our cross-border team for a confidential consultation. We will model the cap, the election and the credit position together, and tell you plainly what the relief is worth to you after both tax systems have had their say.