To the point
Earning money abroad while living in the UK sounds straightforward until you realise HMRC wants to know about every penny.
Whether it’s rental income from a property overseas, freelance work for international clients, or dividends from foreign investments, the rules around foreign income can feel like a maze. UK resident individuals also need to consider foreign earnings and employment income from abroad, as these types of income may have specific tax implications and exemptions.
Understanding your residence status, what counts as foreign income, and how double taxation treaties work is crucial to staying compliant. Get it wrong, and you could face penalties but get it right, and you might even reduce your tax bill.
Pie tax the UK’s first personal tax app tracks foreign income alongside your UK earnings in one dashboard, automatically calculating what you owe and flagging potential reliefs you might have missed. Or if you’re just here to get to grips with it all, let’s break it down!
What Counts as Foreign Income?
Foreign income is any money you earn from sources outside the UK, whether that’s employment, self-employment, property, investments, or pensions.
It includes salary from working abroad, rental income from overseas properties, interest from foreign bank accounts, and dividends from international shares. Foreign employment income specifically refers to salary or wages earned from an employer based outside the UK, and the tax treatment may differ depending on whether your employer is UK-based or foreign.
Royalties, foreign pensions, and income from overseas businesses all count too, even if the money never physically enters a UK bank account. If you’re paid in a foreign currency, you need to convert it to pounds using HMRC’s exchange rates for the date you received it.
Some foreign benefits and allowances might be taxable in the UK, even if they weren’t taxed where you earned them. The key question isn’t where the money is it’s where you’re resident for tax purposes.
UK Tax Residence and Foreign Income
Your tax residence status determines whether the UK can tax your worldwide income or just your UK income.
If you are resident in the UK, you are subject to UK tax on your worldwide income. If you’re UK resident, HMRC generally expects you to declare and pay tax on all your foreign income, no matter where it was earned.
Non-residents usually only pay UK tax on income that comes from UK sources, like a property you rent out in London. The Statutory Residence Test (SRT) uses factors like days spent in the UK, your home location, and work ties to decide your status.
These rules are subject to change and may not cover every aspect of the subject, including specific considerations for regions such as Northern Ireland.
Understanding the Remittance Basis
The remittance basis is a special tax rule for UK residents who are not domiciled in the UK. If you’re a UK resident but your permanent home (“domicile”) is abroad, you may be able to choose the remittance basis for your foreign income and gains. This means you only pay UK tax on foreign income and gains if you bring (“remit”) them into the UK, rather than being taxed on all worldwide income and gains as they arise.
By claiming the remittance basis, you can delay or even avoid UK tax on such income or gains, provided they are not brought into the UK. However, it’s important to understand that claiming the remittance basis can affect your entitlement to certain UK tax allowances and reliefs, such as the income tax personal allowance and the capital gains tax annual exempt amount. In some cases, you may lose these allowances for the tax year in which you claim the remittance basis.
Additionally, UK residents who claim the remittance basis should be aware of the temporary repatriation facility. This facility allows eligible individuals to bring certain foreign income and gains from previous tax years into the UK at a special, lower rate of tax, but only for a limited period.
Understanding the rules around the remittance basis and the temporary repatriation facility is crucial for anyone looking to manage their UK tax liability on foreign income and gains effectively. Always consider the impact on your overall tax position and seek advice if you’re unsure whether you qualify or if claiming is right for you.
Declaring Foreign Income to HMRC
You must report foreign income on your Self Assessment tax return, usually in the “Foreign” section of the SA106 form. HMRC wants to know the gross amount before any foreign tax was deducted, the foreign tax you paid, and the sterling equivalent.
You must also declare other foreign income, and be aware that making a FIG claim or any of the three claims can affect your tax allowances and reliefs.
Even if you’ve already paid tax abroad, you still need to declare the income double taxation relief comes later in the calculation. If your foreign income is less than £300 and you’ve already paid foreign tax on it, you might not need to complete the full foreign pages.
Failing to declare foreign income is serious HMRC has access to international data-sharing agreements and can spot undeclared overseas earnings. Keep records of foreign tax paid, exchange rates used, and any correspondence with overseas tax authorities for at least five years.
Double Taxation Relief: Avoiding Paying Twice
Double taxation relief (DTR) prevents you from being taxed twice on the same income by both the UK and another country. The UK has treaties with over 130 countries that set out which country has taxing rights and how relief is given.
If you’ve paid foreign tax, you can usually claim a credit against your UK tax bill for the amount already paid abroad, up to the UK tax due on that income.
Unilateral relief applies if there’s no treaty with the country where you earned the income you can still claim relief, but the rules are slightly different. Relief must be claimed on your tax return, and profits and gains arising from foreign sources may require special calculation for relief purposes.
You claim DTR on your Self Assessment return by filling in the foreign pages and calculating the relief yourself, or HMRC will do it if you provide the right details. Sometimes foreign tax paid is higher than UK tax due you can’t get a refund from HMRC for the excess, but you might be able to claim it back from the foreign country.
Key Deadlines and Dates
Staying on top of key deadlines is essential for UK residents with foreign income and gains. The UK tax year runs from 6 April to 5 April the following year. For most individuals, the deadline to file your self assessment tax return and pay any tax due is 31 January after the end of the tax year. This is also the deadline for making claims under the FIG regime so if you’re eligible for relief on foreign income and gains, make sure your claim is included in your tax return by this date.
For those using the temporary repatriation facility to bring previous years’ foreign income and gains into the UK at a special rate, the claim must be made by 31 January 2028. Missing these deadlines can result in penalties and interest, so it’s crucial to keep accurate records and plan ahead.
If you live abroad or have complex foreign income and gains, consider your tax position well before the end of the tax year. UK residents should review their eligibility for reliefs, ensure all claims are made on time, and seek professional advice if needed. By keeping track of the tax year, key dates, and the requirements of regimes like FIG and the temporary repatriation facility, you can stay compliant and avoid unnecessary tax or penalties.
Pie tax: Simplifying Foreign Income Tax
Tracking foreign income alongside your UK earnings doesn't have to mean juggling spreadsheets and currency converters. Pie tax the UK's first personal tax app brings everything into one place, automatically calculating your tax liability in real time.
Our sector-specific assistants guide you through foreign income reporting, flagging potential double taxation relief you might qualify for. The multiple-income dashboard handles currency conversions and keeps your records HMRC-ready.
Once you're confident everything's correct, you can file directly to HMRC through the app without switching platforms. No more second-guessing whether you've declared everything properly.
Explore the Pie Tax app if you'd like to see how it works foreign income doesn't have to be complicated.
Final Thoughts
Foreign income tax doesn't have to be a nightmare, but it does require attention to detail and a solid understanding of your residence status. Declaring everything properly, claiming the right reliefs, and keeping good records will keep you on the right side of HMRC.
If you're earning abroad, don't assume it's invisible to HMRC international data sharing means they'll find out eventually. Get ahead of it, file correctly, and sleep soundly knowing your tax affairs are in order.
