UK tax for UK residents on foreign income and gains
If you have foreign income or gains (that is, income and gains from outside the UK), you need to understand how these might be taxed in the UK. In general, foreign income and gains are taxable on UK resident taxpayers. However, there are some important exceptions.
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Generally, the UK tax system taxes anyone who is resident in the UK on their worldwide income and gains. On the other hand, if you are non-resident in the UK, your foreign income and gains are not in scope of UK tax.
Therefore, only UK resident individuals will need to consider a possible UK tax liability on their foreign income and gains.
If you are UK resident, but non-domiciled, the amount of UK tax you have to pay on foreign income and gains may depend on whether or not you bring money or assets into the UK.
With effect from 6 April 2017, the law treats some individuals who are not UK domiciled as if they are domiciled (‘deemed domiciled’) in the UK for income tax and capital gains tax purposes.
UK resident taxpayers should usually consider the following steps when working out if UK tax is due on their foreign income and gains:
- What is the position under UK domestic law? This will depend on whether you are UK domiciled, and if you are non-domiciled, whether the remittance basis applies to the income.
- If the income is taxable under UK domestic law, what is the position under any relevant double taxation agreement?
- If the income or gain is taxable in the UK after considering the above, how can any double taxation be relieved?
Examples of foreign income and foreign gains include:
- Earnings relating to work duties performed in another country (even if this is for a UK employment, or the earnings are paid in or from the UK)*;
- Profits from running a business in another country;
- Income from renting out a property in another country;
- Gains from selling or giving away overseas assets, such as a house or shares;
- Interest on savings in overseas bank accounts;
- Overseas pension income;
- Other overseas investment income, such as dividends on shares in overseas companies.
*if overseas workday relief does not apply, then the ability to exclude earnings for non-UK duties under the remittance basis is restricted to earnings from a foreign employer where the duties are performed wholly outside the UK. We recommend you seek professional advice in this situation.
Foreign workers’ exemption
If you work in the UK and have a small amount of foreign earnings you might be able to avoid filing a tax return and paying UK tax on your foreign income if the ‘foreign workers’ exemption’ applies. It does not matter if the foreign income is remitted to the UK. The exemption is available if all of the following conditions apply:
- you are resident in the UK;
- you are not domiciled in the UK;
- you are employed in the UK;
- your foreign employment income does not exceed £10,000 and it has been subject to tax in the country it arose (even if no tax was paid, for example because it was covered by a tax allowance in that country);
- your foreign investment income does not exceed £100, and is subject to tax in the country it arose;
- you have no other foreign capital gains and or income;
- your worldwide income and gains are less than the higher rate threshold for the tax year (£37,700 in 2023/24 after deducting personal allowances, though different thresholds apply in Scotland). In other words, you are a basic rate taxpayer;
- you are not required to complete a self assessment tax return for any other reason, such as self-employment.
If all of the above conditions apply, the foreign income is exempt from UK tax. You will still be liable to UK tax on your UK income and gains. This exemption is aimed at lower earning individuals who might inadvertently be non-compliant with the complex remittance basis rules.
Bringing money to the UK
In general, the only occasion you might need to pay UK income tax on money which you bring to the UK is where that money represents foreign income that arises while you are UK resident and taxable on the remittance basis.
If you make a transfer to the UK from an overseas savings account which earns interest, you are likely to be deemed to remit some of the foreign interest income with any transfer to the UK from that account. This could trigger an unexpected tax liability in the UK, so you should seek advice before you do so.
Note that if you are bringing physical cash into, or out of, Great Britain and it exceeds £10,000, you must declare it. If you are bringing physical cash into, or out of, Northern Ireland and it exceeds 10,000 Euros, you must declare it.
Undisclosed foreign income and gains
You may have received a letter saying that HMRC’s information indicates you currently have or previously had offshore income or gains, and if you have additional tax to pay, to tell HMRC using the worldwide disclosure facility (WDF).
Note that if you have undisclosed UK tax liabilities in relation to offshore income and gains for tax years 2015/16 and earlier, and you did not disclose this to HMRC by 30 September 2018, you may be liable to penalties under the requirement to correct regime. See our page Tax penalties and interest, under the heading Offshore penalties.
We strongly recommend that you seek advice in this situation.