Overseas Assignments: The UK Tax Issues Executives Should Consider Before Departure

By Emma McDermott ATT, Founder of Global Tax Consulting

UK executives working abroad stand to make significant savings in tax, but they should devote some attention to the details of their tax liabilities. 

For executives working overseas, UK tax liabilities can continue long after departure, particularly where employment income, share awards, and return dates overlap. Here, Emma McDermott of Global Tax Consulting runs through the issues that should be taken into consideration, with some apposite examples.

When a company sends an executive overseas, the initial focus is usually on the assignment itself: the new role, relocation arrangements, and remuneration package.

The tax position deserves just as much attention.

Moving overseas can significantly reduce an executive’s UK tax liability, but it does not necessarily remove it altogether. Salary relating to UK workdays can remain taxable, bonuses may relate to periods before departure, and share awards can carry a UK tax liability years after the employee has moved.

The timing of a return to the UK can also affect gains realised while living abroad.

For executives and employers, there are several areas worth reviewing before an overseas assignment begins.

Establishing non-residence before departure

UK residence is determined each tax year under the Statutory Residence Test.

For executives taking up full-time employment overseas, the third automatic overseas test is often the most relevant route to non-residence.

To qualify, the individual must satisfy the following conditions:

• Work sufficient hours overseas, broadly averaging at least 35 hours per week; 
• Exercise a workday overseas in every 31 day period; 
• Spend no more than 90 midnights in the UK during the tax year; 
• Exercise no more than 30 workdays in the UK during the tax year.

The UK workday limit is particularly important for executives who continue attending meetings at their employer’s UK offices. A regular pattern of business trips can quickly use up the permitted 30 workdays. 

The position is slightly different in the year of departure.

Under Case 1 of the split-year rules, an individual who starts full-time work overseas may qualify to divide their departure year into a UK-resident part and an overseas part.

This requires the relevant overseas working conditions to be satisfied after departure, together with non-residence under the full-time work abroad test in the following tax year. The permitted UK days and workdays in the departure year are reduced according to the departure date.

Example: James, a sales director earning £200,000, begins a two-year assignment in Dubai on 1 August 2026.

For Case 1 split-year treatment, he must spend no more than 60 days in the UK and perform no more than 20 UK workdays between 1 August 2026 and 5 April 2027, alongside satisfying the other conditions.

He must also qualify under the full-time work abroad test throughout 2027/28. 

If James works an average of 45 hours per week overseas, has no significant breaks, and spends 40 days in the UK, including 20 UK workdays, he would satisfy the full-time work abroad test for 2027/28.

In this example, assuming the remaining Case 1 conditions are met, his 2026/27 tax year is split from 1 August 2026.

How salary and bonuses are taxed

Once an executive becomes non-resident, the UK taxes employment earnings attributable to duties physically performed in the UK.

This means that salary earned while working overseas will fall outside the scope of UK income tax, even where the employer remains based in the UK.

Where duties are performed partly in the UK and partly overseas, the salary is apportioned by reference to UK workdays and total workdays.

Once an executive becomes non-resident, the UK taxes employment earnings attributable to duties physically performed in the UK.

Example: During 2027/28, James works 200 days in total, including 20 days in the UK. Of his £200,000 salary, £20,000 is attributable to UK duties and taxable in the UK. The remaining £180,000 falls outside UK income tax.

Bonuses require a separate calculation, because they may relate to work performed before departure.

A bonus received after leaving can remain taxable in the UK to the extent it relates to the UK-resident period or UK duties performed during the overseas period.

Suppose James receives a £60,000 bonus in June 2027 relating to the 2026 calendar year.

Assuming the bonus was earned evenly throughout the year, £35,000 relates to January to July, when he was UK resident. The remaining £25,000 relates to August to December, when he was working overseas.

If James performed eight UK workdays out of 100 total workdays during that overseas period, £2,000 of the remaining bonus would be taxable in the UK. 

In this example, £203,000 of James’s total remuneration falls outside UK income tax.

The host country may still tax those earnings, and any remuneration received specifically for acting as a company director should be considered separately under the relevant tax treaty.

The allocation of bonuses should also reflect the period over which they were actually earned, which may not always be a straightforward time-based calculation.

Share awards can retain a UK tax liability

Share-based remuneration is another area that needs attention before an executive moves.

Senior employees often receive restricted stock units (RSUs), share options, or other long-term incentives that vest over several years.

For internationally mobile employees, the UK tax treatment generally takes account of the period over which the award was earned, rather than simply looking at where the employee lives when it vests.

Under the employment-related securities rules, this is known as the relevant period. It commonly runs from the date of grant to vesting, although the precise period depends on the award’s terms.

The proportion relating to UK residence can remain taxable even where the employee is non-resident when the award vests. For periods of non-residence, the UK workday element may also be taxable.

Example: Sarah, a finance director, receives RSUs in July 2025 which vest in July 2028.

She moves to Singapore in July 2026 and performs no further employment duties in the UK. She also receives a second award in September 2026, which vests in September 2028. Assuming Sarah qualifies for split-year treatment from July 2026, the two awards would be treated differently. 

The first award relates to three years, of which approximately one year was spent as a UK resident. On these simplified assumptions, one-third of the award remains taxable in the UK.

The second award was granted after Sarah became non-resident and relates entirely to overseas duties, so no UK employment income tax arises.

The result is that £240,000 of the £300,000 falls outside UK income tax.

In practice, each award needs to be reviewed separately, particularly where there are different vesting conditions, performance periods or UK workdays.

The country in which the executive is working may also tax the award, meaning double taxation relief may need to be considered.

Selling shares while overseas and the five-year rule

There is a distinction between the tax arising when an employee acquires shares through an award and the Capital Gains Tax position when those shares are subsequently sold.

For RSUs, the value brought into charge as employment income will generally form the base cost for calculating any subsequent capital gain.

Non-residents are generally outside the scope of UK Capital Gains Tax on ordinary share disposals, subject to exceptions including certain interests in UK property-rich companies. However, the temporary non-residence rules can become relevant if the employee returns to the UK.

Broadly, where an individual was UK resident for at least four of the seven tax years before departure and returns after a period of non-residence lasting five years or less, certain gains realised overseas can become taxable in the year of return.

These rules commonly affect shares acquired before departure and sold while living abroad.

Example: Priya holds shares that vested before she left the UK. During a three-year overseas assignment, she sells them and realises a £150,000 capital gain.

Although the disposal will fall outside UK Capital Gains Tax while she is non-resident, the gain may become taxable when she returns to the UK.

At 2026/27 rates, assuming the full £3,000 annual exempt amount is available and the remaining gain is taxed at 24%, the liability would be £35,280. The actual amount would depend on the rules and circumstances in her year of return.

Shares first acquired during the overseas assignment are excluded from the temporary non-residence rules.

For executives holding substantial share awards, the timing of vesting, disposal, and any planned return to the UK should therefore be reviewed together.

What employers need to do

The tax treatment also has practical implications for employers operating UK payroll. 

Where an employee will work overseas for a full tax year without UK duties, HMRC may issue an NT tax code allowing salary to be paid without UK PAYE deductions. The employee’s departure can be notified through form P85, where appropriate, and the self-assessment process where required.

Where an employee will work overseas for a full tax year without UK duties, HMRC may issue an NT tax code allowing salary to be paid without UK PAYE deductions

If the employee continues working in the UK during the assignment, the employer can use HMRC’s PAYE notification process, formerly known as a section 690 direction. This allows PAYE to be operated on an estimated proportion of earnings relating to UK duties, rather than withholding UK tax on the full salary. The notification must be renewed each tax year and updated where the expected working pattern changes.

The employee must also complete a self-assessment tax return to reconcile the final UK taxable earnings with the amounts processed through payroll.

Where relevant, residence and split-year treatment are reported through the SA109 supplementary pages.

Employers operating share schemes also have reporting obligations. Employment-related securities returns are generally due by 6 July following the end of the tax year.

Alongside these requirements, both parties should retain accurate records of UK working days, overseas working hours, bonus periods, and share award documentation.

National Insurance and overseas social security obligations must also be reviewed separately from the income tax position.

Planning before the assignment begins

Overseas assignments can produce significant UK tax savings, but the outcome depends on the employee’s residence status, working pattern, and remuneration arrangements.

In my experience, the more complicated issues often arise from payments that span several years, particularly bonuses and share awards granted before departure but paid or vested while the employee is overseas.

These are easier to address when the assignment is being arranged than several years later, when working records may be incomplete and the employee is preparing to return.

For employers and executives, agreeing the expected UK workdays, reviewing existing share awards, and establishing the correct payroll treatment before departure can prevent unnecessary tax deductions and reporting problems.

It is also worth considering the expected assignment length and whether there is any intention to return to the UK within five years.

A little planning before the move can make a considerable difference to both the immediate tax position and the obligations that arise when the assignment ends.

About the Author

Emma McDermott ATT is the founder of Global Tax Consulting, a UK tax advisory firm specialising in helping expats and digital nomads with cross-border tax affairs.