Interested in how the UK taxes overseas income and foreign gains? Find out what income needs to be reported, the thresholds that apply and how to manage your tax.

Key Points

• UK tax residents must report foreign income over £2,000 on their Self Assessment tax return and double tax treaties can relieve double taxation.
• Remittance basis allows non-domiciled residents to pay UK tax only on foreign income brought into the UK, arising basis taxes individuals on their worldwide income as it arises.
• Accurate reporting of foreign income is key to avoiding penalties and understanding the exemptions and allowances can reduce tax liability.
• Transferring money to the UK can trigger UK income tax for non-domiciled residents. The remittance basis rules mean that foreign income brought into the UK may be subject to tax, and understanding these rules is crucial to managing potential tax costs.

Understanding UK Tax on Foreign Income

The UK tax system can be complex, especially when it comes to foreign income. As a UK tax resident, you may be required to pay tax on your foreign income, even if it’s not brought into the UK. Understanding the tax rules on foreign income is crucial to ensure you’re meeting your tax obligations.

Foreign income includes earnings from a foreign employer, interest from an overseas savings account, and other foreign income and gains. If you’re a UK tax resident, you may need to consider a possible UK tax liability on your foreign income and gains. This means that even if you earn money abroad, you might still have to pay UK tax on it, depending on your residency status and the amount of income.

Navigating these rules can be challenging, but being informed about your obligations can help you avoid unexpected tax bills and penalties. It’s essential to stay updated on the latest tax regulations and seek professional advice if needed.

Foreign Income and Gains

Foreign income, including overseas income, encompasses:

• Wages from work abroad
• Profits from foreign businesses
• Rental income from overseas properties
• Gains from selling foreign assets

Understanding these types of income is the first step in understanding the UK tax system.

You don’t pay UK tax on foreign income or gains if it’s less than £2,000 in a tax year and not brought into a UK bank account. This threshold gives some relief for those with minimal foreign income to manage their finances better.

But if your foreign income is over this threshold or brought into the UK you will need to report it and may be taxed. Knowing these differences will help you plan better and avoid tax surprises.

Tax Rules for Foreign Income

The tax rules for foreign income vary depending on your tax status. If you’re a UK tax resident and domiciled in the UK, you’ll pay UK tax on your worldwide income and gains. This means that all your income, whether earned in the UK or abroad, is subject to UK tax.

However, if you’re a UK tax resident but not UK domiciled, you may be able to claim the remittance basis. This allows you to pay UK tax only on foreign income and gains that are brought into the UK. This can be beneficial for those who earn significant income abroad but do not remit it to the UK.

From 6 April 2025, the concept of domicile and non-domicile status will no longer be relevant for UK taxation. The new Foreign Income and Gains (FIG) regime will apply to individuals who become UK tax residents after a period of 10 tax years of non-UK residence. Eligible individuals will not pay UK tax on foreign income and gains arising in the first four years of UK tax residence. This change aims to simplify the tax system and provide clarity for new UK residents.

Tax for UK Residents

As a UK tax resident you are required to pay UK tax on your worldwide income and gains. This means all foreign income must be reported on your Self Assessment tax return if it’s over £2,000. UK tax law applies to residents on their global income and gains, and UK income tax obligations can be complex, especially for non-domiciled residents. Non-residents are not taxed on foreign income.

Employers can help employees with Foreign Income and Gains regime tax relief through simplified PAYE processes. This can be a big help in managing your tax. And if your foreign income is only dividends under £500 and you have no other income you don’t need to file a tax return.

Double tax treaties play a big part in your tax liability. These treaties can prevent double taxation by specifying which country has the right to tax certain types of income. Seeking advice is key to understanding the impact of these treaties on your foreign income.

Non-UK domiciled tax residents are taxed on foreign income only if it’s remitted to the UK. Knowing your domicile status and its impact on your tax is key to proper financial planning.

Paying UK Tax on Foreign Income

If you’re required to pay UK tax on your foreign income, you’ll need to declare it on your Self Assessment Tax Return. This process involves reporting all your foreign income and gains, ensuring that you comply with UK tax laws. Accurate reporting is crucial to avoid penalties and ensure that you’re meeting your tax obligations.

You may also be able to claim foreign tax credit relief on foreign income, which can help reduce your UK tax liability. This relief allows you to offset the tax you’ve already paid in the foreign country against your UK tax bill, preventing double taxation.

It’s essential to keep accurate records of your foreign income and gains, as well as any tax paid overseas. You may need to provide this information to HMRC when completing your tax return. Keeping detailed records will make the process smoother and help you avoid any issues with your tax return.

If you’re unsure about your tax obligations on foreign income, it’s recommended that you seek professional advice from a tax specialist. They can help you navigate the complex tax rules and ensure you’re meeting your tax obligations. Professional advice can be invaluable in managing your tax affairs and avoiding costly mistakes.

Foreign Tax Credit Relief

Foreign Tax Credit Relief is available to UK tax residents or non-residents who have remitted foreign income to the UK. This relief prevents double taxation by allowing you to offset foreign taxes paid against your UK tax liability. You must report your foreign income on your Self Assessment tax return and tick the box if you want to claim relief for any foreign capital gains tax paid.

You must register for Self Assessment by October 5th to claim this relief for the relevant tax year. The amount of relief available depends on the double-taxation agreement between the UK and the country of the foreign income.

Professional tax services can ensure tax compliance and prevent double taxation. Understanding and using Foreign Tax Credit Relief can reduce your overall tax liability and avoid double taxation.

Remittance Basis Overview

The remittance basis allows UK residents who are not deemed domiciled to pay UK tax only on foreign income and gains they bring into the UK. This is particularly helpful for new residents who can get a full tax exemption on foreign income and gains for the first 4 years in the UK if they were non-UK resident for the previous 10 years.

But claiming the remittance basis can mean you lose certain tax free allowances and an annual charge based on how long you’ve been a UK resident. After a few years you’ll have to pay a Remittance Basis Charge which can be £30,000 or £60,000 depending on your residency.

From April 2025 individuals who have previously claimed the remittance basis will be able to rebase their foreign assets to their 2017 value when they sell them. This is a big tax planning opportunity.

Arising Basis

The arising basis taxes individuals on their worldwide income as it arises like UK domiciled individuals. Deemed domiciled individuals cannot use the remittance basis and are taxed on their worldwide income. This can be a big change for those who previously used the remittance basis.

If you don’t submit a claim for foreign income and gains relief in a tax year the taxation will apply on an arising basis. This means income and gains will be taxed as they arise. If you claimed the remittance basis you can rebase the value of foreign capital assets to their value as of 5 April 2019.

Tax planning can help you manage your tax liability and ensure tax compliance.

Reporting Foreign Income and Gains

Reporting foreign income, overseas income, and gains correctly is key to avoiding penalties. These must be reported on a Self Assessment tax return whether the gains are from UK or overseas property. For foreign income or gains of £2,000 or more you must report this and can choose to pay UK tax or claim the remittance basis.

Paper returns must be submitted by 31 October after the end of the tax year, online by 31 January of the following year. Tax due must be paid by 31 January to avoid late payment penalties.

Capital Gains Tax on foreign property sales is reported in the Self Assessment return for the relevant tax year not within 60 days like UK residential property. Reporting correctly ensures compliance and avoids costly penalties.

Exemptions and Allowances

There are various exemptions and allowances that can reduce the tax on foreign income and gains. For those eligible for Overseas Workday Relief the exclusion from UK tax can apply to earnings from employment duties performed outside the UK. But this relief will now have a financial cap, so you can only claim either £300,000 or 30% of your total employment income.

The foreign workers’ exemption allows certain low income individuals to avoid UK tax on foreign earnings if certain conditions are met. For example foreign workers earning under £10,000 may be exempt from UK income tax on their foreign income if certain conditions are met.

Knowing these exemptions and allowances can help you manage your foreign income better.

Bringing Money to the UK

Bringing money from foreign accounts to the UK can have UK income tax implications if it includes taxable foreign income. Understanding these implications will avoid unexpected tax bills.

Luckily a Temporary Repatriation Facility will allow you to remit foreign income and gains at a lower tax rate for 3 years post 2025. This is a one off opportunity for tax planning and should be considered.

Unreported Foreign Income

Overseas income and other types of unreported foreign income can result in severe penalties if not disclosed to HMRC. Penalties are more severe if you are already under HMRC investigation or if there has been prior inaccurate disclosure. So full and accurate disclosure is key.

You have 90 days to gather and submit all the necessary information for your disclosure under the Worldwide Disclosure Facility (WDF). To participate in the WDF you must submit a full disclosure of all unreported UK tax liabilities and calculate any interest and penalties due.

Disclosing foreign income promptly and correctly will avoid severe consequences including higher penalties and potential criminal investigations.

Transitional Provisions for the New Rules

From 6 April 2025 the remittance basis will be replaced with a new tax regime that is based on residency not domicile. The existing tax rules for non-UK domiciled individuals will be abolished and will be replaced by a residence based system.

There will be various transitional provisions under the new FIG regime including rules for non-UK domiciled individuals who claim the remittance basis for 2025/26 to 2027/28 tax years. These changes will affect how foreign income is taxed in the UK, with significant implications for UK income tax.

Budget Impact

The Spring Budget has introduced some changes that affect foreign income tax and UK income tax. Business Investment Relief will still be available for qualifying investments from remittance basis years after 6 April 2025.

You should consider these changes carefully.

Professional Advice and Tools

Overseas income and other types of foreign income tax can be complex. Individuals with foreign income tax issues should talk to tax professionals. If you find errors in your tax returns, amend them as soon as possible to avoid penalties.

Tools to help you understand foreign income tax are available but personal advice is often required for your specific situation.

Conclusion

In summary, foreign income, overseas income, and gains need to be managed under UK tax law. From understanding your tax obligations and claiming Foreign Tax Credit Relief to switching tax bases, every step matters.

Stay informed and get professional advice will make a big difference to your tax liabilities. Follow the advice and tips in this guide and you’ll be foreign income tax ready.

FAQs

What is the threshold for foreign income before it’s taxed in the UK?

Foreign income or gains of less than £2,000 in a tax year are not taxed in the UK if they remain outside the UK banking system. So keep an eye on the total to avoid tax.

How do I claim Foreign Tax Credit Relief?

Claim Foreign Tax Credit Relief by reporting your foreign income on your Self Assessment tax return and stating you want to claim relief for any foreign capital gains tax paid. Make sure you have all the necessary documentation in place for a smooth process.

What is the remittance basis?

The remittance basis allows UK residents who are not deemed domiciled to be taxed in the UK only on foreign income and gains they bring into the country. Unremitted foreign income is not taxable in the UK.

What happens if I don’t disclose my foreign income?

Not disclosing foreign income can result in big penalties especially if you are under HMRC investigation or have a history of incorrect disclosures. You must report all income to avoid this.

Are there any changes to the remittance basis coming?

Yes, from 6 April 2025 the remittance basis will be replaced by a residency based regime. This will impact individuals who are resident in the UK.