United Kingdom Updates Tax Rules for Deferred Pay

HM Revenue & Customs (HMRC) recently clarified how it taxes deferred remuneration, such as bonuses and stock options, for employees who move between countries. The updated guidance confirms that taxing rights are primarily determined by your treaty residence at the exact time you receive the payment.

This change follows Article 15(1) of the OECD Model Tax Convention. If you are a UK resident when a bonus hits your account, the UK generally taxes the full amount. However, if you have already moved abroad and are a non-resident at the time of payment, the UK only taxes the portion of the income related to workdays you actually spent in the country.

Who is affected

This update specifically impacts globally mobile employees, including digital nomads and expats, who transition in or out of the UK tax net. If you earned a performance bonus while living in London but received the cash after moving to Lisbon, these rules dictate exactly how much each government can claim.

While the guidance clarifies employment income, it does not apply to casual tourists or short-term travelers. It is particularly relevant for those with long-term incentive plans (LTIPs) or commissions paid months or years after the work was performed.

What to do

If you believe you have overpaid tax on deferred pay in previous years, you can file an amended Self Assessment return or use the Mutual Agreement Procedure (MAP) to reclaim funds. There are no new fees involved, but you should review your specific Double Taxation Agreement (DTA) since not all treaties follow the OECD model exactly.

Employers should also review their payroll processes for cross-border workers to ensure they are apportioning tax correctly. Keep in mind that National Insurance contributions are still calculated based on the period when the money was earned, which can sometimes create a mismatch with how the income tax is handled.

Stay updated on the latest nomad news to see how global tax shifts impact your remote work setup.

Read our full United Kingdom guide for the complete picture.