Income from abroad
The basics of what you need to do if you have income from overseas.
If you are a UK resident you have to report your worldwide income, for most UK residents, income from abroad is taxable in the UK…
For most UK residents, income from abroad is taxable in the UK
- UK residents must report worldwide income to HMRC.
- Most income arising overseas is taxed in the country where it arises.
- Credit may be given for some of the tax paid overseas against UK tax.
- You may have an obligation to submit overseas Tax Returns.
- Formal agreements called Tax Treaties exist between most countries. These regulate what is taxed in which country and go some way to eradicate double taxation.
- Special rules exist for unremittable income.
- Special rules exist for those recently arrived in the UK after being non-resident for ten years or more.
- This is a VERY complicated topic.
Where do I pay tax on overseas income?
All overseas income is taxable in the UK except in two cases:
- Before 5th April 2025 you are non-domiciled and have chosen to use the remittance basis. Subject to paying the remittance basis charge, you only pay UK tax on foreign income or gains remitted to the UK. OR
- After 5th April 2025 you have arrived in the UK after being overseas resident for more than ten consecutive years and have claimed to be taxed on foreign income under the FIG (Foreign Income and Gains) regime. You will not pay UK tax on FIG arising in the four tax years after immigrating, but you must elect for this treatment in your UK tax return.
Subject to an FIG election, if foreign income or gains have already been taxed overseas, the UK tax may be reduced by the amount of foreign tax paid on the same income (but a refund can never be created). The amount by which UK tax may be reduced will depend on the wording of the Tax Treaty between the UK and the country in which the income was taxed.
Until 5th April 2025, all UK residents were subject to tax on income from abroad—except where the individual is not domiciled in the UK and the income is not remitted to the UK and an election has been made to use the remittance basis. For those who have taken advantage of the remittance basis there is transitional relief as from 5th April 2025.
From 6th April 2025, the replacement for the non-domicile regime is a residence-based test—which allows individuals moving to the UK to be taxed only on their UK source income and gains for the first four tax years, with no UK tax on any overseas income or gains arising in those years, even if brought to the UK. To be within this four-year foreign income and gains regime, individuals must be within their first four tax years of residence, following a period of 10 tax years consecutive non-UK residence.
The mechanism differs according to the type of income. The FIG election covers all overseas income except foreign earnings and foreign employment income. In the year of arrival, the Split Year Treatment can put salary (and other overseas income) up to the date of arrival in the UK out of the scope of UK tax. Overseas Workday Relief will fully relieve from UK tax salary paid for work done overseas while UK resident and up to the fourth anniversary of the 6th April preceding arrival in the UK. Overseas workday relief is capped at £300,000 per year.
The claim to use the FIG regime must be made in a Self Assessment Tax Return. If you wish to continue to work overseas while being UK resident (after being non-resident for ten years or more), you will not pay UK tax on FIG for the first four years after immigrating. However, this must be claimed in a Self Assessment Tax Return and the amount of income so sheltered must be disclosed. For a more detailed explanation of the new FIG regime, see Arriving in the UK.
Do I have to pay tax in more than one country?
The obligation to pay tax in the country where the income arose and again in the UK gives rise to Double Taxation. This would clearly be unfair, so the Double Taxation Agreements (see also HMRC Tax Treaties) were made to give the taxpayer some relief and to set down rules for which country would receive tax on each different category of income. The Double Taxation Agreements provide that the country in which the income arose generally gets first right to assess and collect tax (and the country of residency will generally give relief for that foreign tax). This is done using a local tax return and the taxable amount is calculated in accordance with local rules. You may need a local accountant or tax practitioner to help you with this. Don’t forget that other countries take a dim view of foreigners arriving, earning income and then not paying the tax due.
You must then make a UK Tax Return including the same income again – but this time calculated in accordance with the UK rules. You should also show the tax suffered overseas and claim Foreign Tax Credit Relief. Page F2 & F3 of the return are for foreign savings, pensions and dividends. Pages F4 and F5 are for income from foreign land and property. The calculation of foreign Tax Credit Relief is quite complicated and working sheets are available to help you in the help notes. (The Help Notes are part of the Foreign Notes).
Foreign Tax Credit Relief is normally the most beneficial way to obtain relief from double taxation, but if you do not wish to claim it you may deduct the foreign tax from your income as if it were an expense. This will limit the maximum you benefit to the foreign tax times your rate of tax.
To claim Foreign Tax Credit Relief you must be a UK resident and the income must be properly chargeable to tax under the law of the country in which it arose. You may be asked to provide evidence that the income has been assessed to tax overseas.
Where a Double Taxation Agreement (see also HMRC Tax Treaties) exists, the amount of foreign tax eligible for relief is the minimum foreign tax payable under the terms of the Agreement. The guidance notes to the Foreign pages of the tax return (FN24 to FN28) list the countries with which a double taxation agreement exists It also shows the rates of tax deduction at source on certain types of income – but while this includes interest, etc it does not include rental income. The calculation of Foreign Tax Credit Relief is therefore normally made with reference to the income calculated in accordance with UK rules, the amount of income assessed overseas calculated with reference to local rules and the rate of tax paid overseas.
Very roughly the relief is limited to the overseas tax as long as:
- the rate does not exceed the UK rate (if it does the relief is restricted) and
- the profit assessed overseas under local rules does not exceed the profit assessable in the UK under UK rules (if it does the relief is restricted).
Special rules apply to tax deducted from dividends paid in some countries. In practice you just enter the foreign tax suffered on your property income in column C of the summary on page F4 on the Foreign pages and if you submit your return early enough – or use an accountant either HMRC or the accountant, will do the rest for you.
