Where a UK resident non-dom has two separate employment contracts for UK and non-UK duties, the overseas earnings may be taxable on a remittance basis so that they are not subject to UK tax if kept outside the UK. HMRC has been concerned that employment contracts are being artificially separated or earnings disproportionately allocated to take advantage of a lower overseas tax rate.

The use of dual contracts by UK resident non-dom high earners has been targeted in the Government’s latest tax crackdown and the draft legislation was released last week. The new measures, applying from 6 April 2014, may result in overseas earnings, income from overseas employment related securities and overseas employment income provided through third parties being taxed in the UK on the ‘arising’ basis rather than the ‘remittance’ basis.

The new rules bite where the individual has UK and overseas employment with the same or associated employers, the UK and overseas employment are related to each other and tax is not payable at a rate broadly similar to UK tax rates.

Foreign tax credit relief will be available in the usual way and the measures will also not apply to overseas income that falls within the three year period for overseas workday relief.