C5.7 Tax on Overseas Income

Tax on Foreign Income in the UK (202510)

Official Link: https://www.gov.uk/tax-foreign-income

1. Overview

If you are a UK resident, you may need to pay UK Income Tax on your foreign income. Foreign income refers to any income from outside England, Scotland, Wales, and Northern Ireland—Guernsey, Jersey, and the Isle of Man are also considered foreign.

Foreign income includes:

• Salaries from working abroad

• Foreign investment income (e.g., dividends and savings interest)

• Rental income from overseas properties

• Pension income held overseas

Notes:

• Whether you need to pay UK tax depends on your status as a UK tax "resident".

• Non-UK residents: No UK tax on foreign income.

• UK residents: Generally liable for tax on foreign income, but may be exempt if eligible for Overseas Workday Relief.

• Before 6 April 2025: If your permanent home (domicile) is outside the UK, your foreign income may be exempt from UK tax.

• You usually need to declare foreign income by submitting a Self Assessment tax return. If income is taxed in multiple countries, you can claim tax relief.

2. UK Residency and Tax

• Non-residents: Only pay tax on UK-sourced income; no tax on foreign income.

• Residents: Generally pay tax on worldwide income (whether from the UK or abroad).

How to determine residency:

Residency is generally based on the number of days you spend in the UK during a tax year (6 April to 5 April the following year). You are considered a resident only if both of the following are met:

1. You satisfy at least one Automatic UK Test or the Sufficient Ties Test.

2. You do not satisfy any Automatic Overseas Test.

Automatic UK Tests (meet any one):

• Spend 183 days or more in the UK during the tax year.

• Have your only home in the UK (owned or rented) for at least 91 consecutive days, and live in it for at least 30 days during the tax year.

• Work full-time in the UK (over any 365-day period), with at least one day falling within the tax year in question.

Sufficient Ties Test: Applies if you spend a certain number of days in the UK and have additional connections (e.g., work, family) to the UK.

Automatic Overseas Tests (meet any one = generally non-resident):

• Spend fewer than 16 days in the UK (fewer than 46 days if you were not a UK resident in any of the previous 3 tax years).

• Work full-time abroad (average at least 35 hours per week), spend fewer than 91 days in the UK, and no more than 30 of those days are work days.

Other scenarios:

• Change of residency: If you move to or from the UK mid-tax year, "split-year treatment" may apply. The year is divided into non-resident and resident periods, and you only pay tax on foreign income from the resident period.

• Capital Gains Tax (CGT): Residency is determined the same way as for Income Tax. Residents pay CGT on worldwide gains; non-residents generally only pay CGT on gains from UK property/land or gains when returning to the UK.

3. Tax Rules for "Non-Domiciled Residents" (Mainly Before 6 April 2025)

Previously, UK residents with a domicile outside the UK could claim exemption from UK tax on foreign income and gains.

Determining your domicile: Your domicile is usually the country where your father’s permanent home was when you were born. It may change if you move abroad with no intention of returning.

Small Remittance Basis (until 5 April 2025): If your foreign income and gains are less than £2,000 and you do not bring the money into the UK (e.g., transfer to a UK bank account), you do not need to declare or pay tax on it.

Income ≥ £2,000 or money brought into the UK (until 5 April 2025): You must declare it on your Self Assessment tax return. You have two options:

1. Pay UK tax (with possible reclaim later).

2. Claim the "Remittance Basis": Only pay tax on money brought into the UK, but lose Income Tax and CGT personal allowances. An annual charge applies if you have been resident in the UK for a certain number of years (£30,000 if resident in 7 out of the previous 9 tax years; £60,000 if resident in 12 out of the previous 14 tax years).

Special Work Rules (until 5 April 2025):

• Foreign Earnings Exemption: If eligible (e.g., foreign work income < £10,000, other foreign income < £100), no UK tax even if you bring the income into the UK.

• Overseas Workdays: If seconded to work in the UK by your employer, you only pay tax on income from days worked in the UK; income from days worked abroad is exempt. (Rules for claims change after 6 April 2025—consult your employer.)

4. Declaring Foreign Income

You usually need to submit a Self Assessment tax return.

Exemption: If your only foreign income is dividends, total dividends (including UK dividends) are below the £500 dividend allowance, and you have no other income to declare, you do not need to submit a return.

Registration: If you do not normally file a tax return, register for Self Assessment by 5 October after the end of the tax year in which the income arose.

Completing the return: Declare foreign income and gains in the "Overseas" section of the tax return. If tax has already been paid abroad, include this to claim Foreign Tax Credit Relief.

5. Special Types of Foreign Income

Most foreign income is taxed the same way as UK income, but the following types have special rules:

• Pensions: If you are a UK resident, or were a resident in any of the previous 5 tax years, you must pay tax on overseas pension payments (including unauthorised early payments and certain lump sums).

• Property Rentals: Taxed in the usual way. Losses from one overseas rental property can be offset against profits from another.

• Specific Employment Income: Special rules apply to income of seafarers/crew members, offshore oil and gas workers, EU or government employees, and voluntary development workers.

6. Avoiding Double Taxation

If your income is taxed both in the UK and the country of origin, you can claim tax relief.

Claiming before paying tax abroad: If your income is exempt from tax in the country of origin but taxable in the UK, or required by a double taxation agreement, you need to apply for relief from the tax authority of the country of origin. To do this, prove your UK residency to HMRC first (via a specific form or Certificate of Residence).

Claiming after paying tax abroad: Generally, you can claim Foreign Tax Credit Relief when submitting your UK tax return. The amount of relief depends on the double taxation agreement between the UK and the country in question. Relief is usually available even without an agreement.

Relief amount: You may not get a full refund of tax paid abroad—this depends on the agreement or the UK tax rate that would have applied.

Capital Gains Tax: Generally, CGT is only paid in the country of residency, with exemption in the country where the asset is located. However, non-residents selling UK residential property still need to pay UK CGT.

Dual residency: If you are a resident of both the UK and another country, check the rules of the other country and refer to HMRC’s guidance on claiming double taxation relief for dual residents.

7. Studying in the UK

International students are generally exempt from UK tax on foreign income used for course fees and living expenses (e.g., food, rent, bills, study materials), provided there is a double taxation agreement between the UK and the country of income that covers students.

Reminder: If living expenses (excluding tuition fees) exceed £15,000 in a tax year, HMRC may ask you to explain how the funds are used.

Tax is required if:

1. There is no relevant double taxation agreement with the country of income.

2. You have other foreign income not brought into the UK.

3. You bring funds into the UK and use them for non-study and non-living purposes.

4. You intend to make the UK your permanent home.

Working in the UK: Some double taxation agreements exempt students from UK tax on work income. If there is no such agreement, you will pay tax the same way as UK residents