If you’re a UK resident who receives foreign gains or income, you might be wondering what the tax implications are.
Foreign income tax, and the amount you’ll have to pay, can depend on a variety of factors.
By staying on top of the current taxations, you may prevent yourself from receiving a surprise tax bill.
There are various types of income you may pay tax on, and the rules on UK residency can be complex.
This guide on foreign gains and income tax will help you understand the fundamental rules and outline the amount of tax that you can expect to pay if you earn money from outside the UK.
Paying tax on foreign gains and income
Foreign income is anything earned from outside England, Scotland, Wales and Northern Ireland.
If you only earn income from any of these four countries, the associated tax is relatively simple.
But if you are a resident of the UK and earn foreign gains and income, tax can become more complex.
You can earn foreign income and gains in a number of ways.
These can include:
Earnings from work performed outside the UK
Profits from a foreign business that you run or have shares in
Income from overseas property rental
Profits from the sale of overseas assets — such as a property, or shares in a company
Interest earned through foreign savings accounts
Pension income from overseas
Am I a UK resident?
Working out whether you are a resident of the UK is key to knowing whether you’ll have to pay foreign gains and income tax — and how much.
According to HMRC, you are a UK resident if you have:
Spent 183 days or more in the UK during the tax year; or
Your only home – owned or rented – for 91 days or more was in the UK, and you spent at least 30 days in it
It’s important to note that you can be a UK resident even if your permanent home is abroad. Whether you are a ‘domiciled’ or ‘non-domiciled’ resident depends on specific criteria, and will impact how foreign gains and income tax will affect you.
Domiciled and non-domiciled residency
‘Domiciled’ refers to where your ‘permanent’ home is.
So, if you are domiciled in the UK, then it is considered your permanent home — for tax purposes, and otherwise.
As a domiciled (or ‘deemed domiciled’) UK resident, you must pay UK tax on all of your income and gains.
However, if you are not domiciled, then the way that foreign tax impacts you may be different.
Regardless, it is often beneficial to seek expert advice to support you with your finances — and with Unbiased, you can find an accountant that will help you every step of the way.
Can I claim overseas workday relief?
If you are non-domiciled in the UK and work here having not been a UK resident for at least the three previous UK tax years, then you may be able to claim tax relief on earnings relating to your ‘overseas workdays’ in your first three tax years of residence in the UK.
Tax relief is available to taxpayers who claim the remittance basis of taxation.
You pay UK tax only on the gains or income brought into the UK
You lose your tax-free personal allowance and CGT allowance
You pay £30,000 or £60,000 — this fee depends on how long you have been a UK resident
You also won’t pay UK tax if you have less than £2,000 of foreign income and keep it abroad.
It’s important to note that as of 7 April 2017, if you meet certain conditions — even as a non-domiciled UK resident — HMRC will still treat you as a domiciled resident, also known as ‘deemed domiciled’, meaning you can’t choose to claim this remittance basis of taxation.
To claim overseas workday relief, you need to meet the criteria set out by HMRC.
Paying tax as a domiciled UK resident
As a domiciled or deemed domiciled resident in the UK, you’ll need to pay UK tax on the ‘arising’ basis.
This means that you’ll need to pay tax on all of your income and gains — from the UK and abroad — regardless of whether you bring it into the UK or not.
Paying tax as a non-domiciled UK resident
As a non-domiciled UK resident, you can pay UK tax on UK income and gains under the remittance basis of taxation, for the tax year in which your income and gains arise.
However, you will only pay UK tax on foreign income and gains when you bring them (they are ‘remitted’) to the UK. This should help to prevent double taxation.
The remittance of taxation applies automatically to those who have unremitted foreign income or gains of less than £2,000 per tax year.
Navigating foreign taxation in the UK can be challenging. But we’re here to help.
At Unbiased, we can connect you with an expert accountant who will help guide you through the process and protect your income.