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Does the remittance basis apply to tax credits?

Updated on 6 April 2023

Migrants

Tax credits have their own rules about what is and what is not income. Other benefits also have their own rules which may not be the same as tax credits and income tax. On this page, we explain whether the remittance basis applies to tax credits.

Note that it is now not normally possible to make a new claim for tax credits as they are being replaced by universal credit.

Illustration of the words tax credits

The general rule for tax credits

If you claim tax credits you need to be aware that the remittance basis does not exist for tax credits, so effectively the arising basis is imposed, regardless of what basis of taxation is adopted.

This means that even if you use the remittance basis for tax purposes – whereby foreign income and gains are only taxed in the UK when they are brought to, or 'remitted to' the UK – you must declare your worldwide income for the purposes of tax credits.

Where do I declare foreign income for tax credits?

When you claim tax credits, foreign income (excluding employment income and trading income) is entered under the ‘other income’ box on the claim form and renewal forms. This includes profits from property overseas, overseas pension and social security income, and overseas investment income, such as bank interest arising on a non-UK bank account. Foreign chargeable event gains are treated as investment income for tax credits, which, again, should be included in the ‘other income’ box.

Employment income and trading income arising outside the UK are simply treated as employment income and trading income respectively, so they should be entered in these boxes on the forms rather than the ‘other income’ box.

What amount should I declare?

You should normally use the gross amount (before any tax is taken off) and the amount should be stated in pound sterling (GBP), not the original currency. You can deduct the amount of any banking charge or commission paid when converting the currency.

Note that, from 6 April 2017, you must report 100% of any overseas pension received as the 10% deduction is no longer available.

How do I convert the amount to pounds sterling?

When converting foreign income into pounds sterling, you should use the average exchange rate figure for the year the income relates to. For example, if the income is from 2022/23, use the average exchange rate for the year ended 31 March 2023. You will find the exchange rates on GOV.UK.

Are there any exceptions?

Not all foreign income is counted for tax credits; there are a few limited exceptions.

Therefore, anyone with foreign income should seek advice to ensure that they are declaring the correct amounts. For those who require more detailed information about foreign income and tax credits, the HMRC manual provides full details of what counts as foreign income.

You can find out more about the remittance basis and arising basis on our page How are foreign income and gains taxed?.

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