Do I Have to Pay UK Tax on Foreign Income?

For those with connections to the United Kingdom, it is important to understand how income from other countries is treated for tax purposes. Foreign income includes earnings like wages from an overseas job, rent from a property abroad, interest from a foreign bank account, or dividends from a non-UK company. The rules for taxing this income depend on an individual’s personal circumstances, specifically their connection to the UK. Determining this connection is the first step in complying with UK tax law.

Determining Your UK Tax Status

Your UK tax liability on foreign income depends on your residence and domicile status. Residence is determined for each tax year, which runs from 6 April to 5 April, using the Statutory Residence Test (SRT). The SRT is a set of rules that establishes if you are a UK resident for tax purposes.

The SRT consists of a series of tests applied in a specific order. It includes automatic tests for both non-residence and residence. For example, spending 183 or more days in the UK during a tax year automatically makes you a resident.

If your status is not determined by the automatic tests, the “sufficient ties test” is used. This test evaluates your connections to the UK, such as family, accommodation, and work, against the number of days you spend in the country. The more connections you have, the fewer days you can spend in the UK before becoming a resident.

Separate from residence is domicile, which is the country you consider your permanent home. While residence can change annually, domicile is more permanent. An individual has a “domicile of origin” from birth, inherited from their father. It is possible to acquire a “domicile of choice” by severing ties with your original domicile and intending to live in a new country permanently.

Being a UK resident but not domiciled in the UK has historically allowed for different tax treatments for foreign income. The combination of your residence and domicile status dictates how your foreign income is taxed.

Methods of Taxation for Foreign Income

For most UK residents, the default method of taxation is the “arising basis.” This approach subjects an individual’s worldwide income and gains to UK tax in the year they are generated. Under this method, income is taxable whether it is kept offshore or brought into the UK.

An alternative method, historically available to UK residents not domiciled in the UK, is the “remittance basis.” This must be claimed annually. Under this basis, foreign income and gains are only taxed if they are “remitted” to the UK. Claiming the remittance basis results in the loss of the annual tax-free personal allowance for income tax and the annual exempt amount for capital gains tax.

A remittance is broadly defined beyond transferring money to a UK bank. For example, using foreign income to pay for a service in the UK or bringing an asset into the country that was purchased with untaxed foreign income are both considered remittances. This required careful management of offshore funds to avoid triggering a UK tax charge.

Long-term residents who used the remittance basis were required to pay a significant annual fee, known as the Remittance Basis Charge (RBC). After 15 years of residence, an individual was considered “deemed domiciled,” and the remittance basis was no longer available.

The UK government has announced major reforms effective from 6 April 2025. The remittance basis and the concept of domicile for tax purposes will be abolished and replaced by a new residence-based system. Under this new regime, individuals arriving in the UK after ten consecutive years of non-residence will not be taxed on their foreign income and gains for their first four years of residency. This income can be brought to the UK without a tax charge, and after the four-year period, they will be taxed on their worldwide income.

Transitional provisions will be available for those affected by these changes. Individuals who previously used the remittance basis can opt to revalue their personally held foreign assets to their 5 April 2025 value for future capital gains calculations. A Temporary Repatriation Facility will also be available, allowing past foreign income and gains to be brought to the UK and taxed at a reduced rate. The rate will be 12% for the 2025/26 and 2026/27 tax years, increasing to 15% for the 2027/28 tax year.

Claiming Relief for Double Taxation

Receiving foreign income as a UK resident can lead to double taxation, where the same income is taxed by both the source country and the UK. The UK tax system provides relief to prevent an excessive tax burden on the same earnings.

The primary method for this is Foreign Tax Credit Relief (FTCR), which reduces your UK tax liability by the amount of foreign tax already paid. The credit is capped at the lower of the foreign tax paid or the UK tax due on that same income. You cannot use excess foreign tax credit to reduce UK tax on other income.

For example, if you receive £5,000 in foreign dividends and paid £750 (15%) in foreign tax, but the UK tax due is £1,000 (20%), you can claim a £750 credit. This leaves a final UK tax bill of £250 on that income. If the foreign tax paid was £1,250 (25%), your credit would be capped at the £1,000 of UK tax due, and no refund for the excess is given.

This relief is governed by Double Taxation Agreements (DTAs) between the UK and other countries. These treaties establish which country has the primary right to tax different types of income. A DTA may provide a full exemption from UK tax for certain income or limit the tax rate the source country can charge. The terms vary by country, so the specific DTA must be consulted to determine the available relief.

Reporting Foreign Income to HMRC

Foreign income must be declared to His Majesty’s Revenue and Customs (HMRC) through a Self Assessment tax return. The deadline for online submission is 31 January following the end of the tax year on 5 April.

Reporting foreign income requires completing the SA106 ‘Foreign’ supplementary page along with the main SA100 tax return. On the SA106, you must detail each source of foreign income, including the country of origin, the amount in its original currency, and the equivalent in pounds sterling (GBP). You also declare any foreign tax paid on this form to claim Foreign Tax Credit Relief.

The SA109 ‘Residence, remittance basis, etc’ form is also required for certain situations. It is used to provide details for the Statutory Residence Test or to claim split-year treatment if you moved to or from the UK during a tax year. Historically, it was used to claim the remittance basis, but its use will adapt to the new 2025 regime. The SA106 and SA109 are submitted with the main SA100 tax return.