The Seafarer’s Earnings Deduction (SED) is a unique tax rule applicable to UK residents who work on ships outside of the UK. It allows qualifying seafarers to claim a 100% tax deduction on their foreign earnings, meaning they can potentially earn a tax-free income.
To qualify for the SED, seafarers must meet certain conditions:
- Employment Duties: The individual must be employed on a ship. This includes a wide range of vessels but excludes offshore installations such as oil rigs.
- Non-UK Work Days: The individual must work outside the UK for at least half of the tax year. This is known as the “365-day rule”. It requires the seafarer to be outside the UK for at least 183 days in a 365-day qualifying period.
- Sufficient Ties to the UK: The individual must have a place of residence in the UK and must spend at least some time in the UK during the tax year.
You can’t get the deduction if you were:
- a Crown employee (for example, a Royal Navy sailor)
- not a UK resident
- not a resident of an EEA State (other than the UK)
If you had more than one job you’ll still get the deduction against your seafarer pay if you meet all the conditions.
It’s important to note that the SED is not automatically applied. Seafarers must claim it on their Self Assessment tax return. If you’re a seafarer and believe you may be eligible for the SED, it’s advisable to seek advice from a tax professional to ensure you meet the criteria and correctly claim the deduction.
While the SED can provide significant tax benefits for seafarers, it can also complicate matters when applying for a mortgage, as lenders may not be familiar with this tax arrangement. Therefore, it’s crucial to work with a mortgage broker who understands the unique circumstances of seafarers.
https://www.gov.uk/guidance/seafarers-earnings-deduction-tax-relief-if-you-work-on-a-ship
