Tax on Foreign Income

Whether you need to pay tax in the UK on any foreign income can be a little confusing even for the experts.

In short, if all your money comes from working in this country, things are basically fairly simple. Once you start working abroad or have interests in other countries that give you financial gain, however, it can all become a little complicated.

What is Tax on Foreign Income?

You may need to pay UK income tax if, for example, you were paid while working abroad. You might have a rental property overseas or a business or have investments coming in from foreign sources. If you are receiving a pension from abroad this may be liable to UK tax also. A lot depends on your personal circumstances, the amount you have coming in and what your residency status is.

Who Pays Tax on Foreign Income?

Essentially, it comes down to whether you are UK resident or not.

  • If you are non-resident, then you pay tax on the money you earn in the UK but not outside.
  • If you are resident or classed as being domiciled in the UK, you will pay tax on all your income.
  • There are, however, different rules for those who are resident but have their main domicile outside of the UK (non-domicile status).

Find out more about residence qualifications here.

How Do I Pay Tax on Foreign Income?

You will need to fill in a self-assessment tax return in the same way you would if you were self-employed. Most foreign income is taxed the same way as normal UK income but there are some exceptions. These include:

  • Pensions: You should check with your pension provider to find out how this is going to be taxed and what to do next.
  • Rental Properties: If you have just one property you pay tax in the same way as you would in the UK. If you have several properties abroad, however, you can offset losses against those properties.
  • Work Income: If you work in specific industries such as oil or gas or work for the EU or government, there are special rules that need to be applied.

What is the Arising Basis of Taxation?

If you are resident and living in the UK you will pay your tax on income, wherever it comes from, on an arising basis. That means you will pay the tax due for the year in which the income was created. It is not affected by whether you bring that income to the UK or not.

If you are resident but not considered domiciled in the UK, you can choose to pay your tax on an arising basis or a remittance basis. You will automatically be charged on the remittance basis unless you opt specifically for the arising basis.

What is the Remittance Basis of Taxation?

This means that you pay tax on UK income for the year but you only pay tax on foreign income when you bring it into the country. For amounts of less than £2,000 the remittance basis applies automatically and it is only open to UK residents who are non-domiciled status, including certain migrants.

Won’t I Be Taxed Twice?

The big concern for many overseas earners is that they will be taxed twice, both by the country where the income was paid and the UK. You can claim tax relief however on foreign income but how much you get can often depend on the double-taxation agreement with that country.

Do I Need to Pay Tax as a Foreign Student?

You don’t normally have to pay tax on foreign income if you are using the money to study here and for things like food, rent, bills and study materials. If there is no double-taxation agreement and you bring money in for other purposes, you will need to pay tax on it.

If you need help with tax on foreign income or income from foreign property, we recommend contacting one of our specialist tax accountant. We offer free advice with no obligation to use our services.