How are foreign income and gains taxed?
The UK tax system is relatively straightforward if you come to the UK and have income and gains from UK sources only for the duration of your stay in the UK. However, if you have income and gains from outside the UK, then you need to consider how these are taxed. On this page we look at the following questions:
If you come to the UK and have foreign income or gains (that is, income and gains from outside the UK) during your stay in the UK, you have to consider more complex tax rules. This is because the UK tax system tries to tax anyone who is resident in the UK on their worldwide income and gains.
Examples of foreign income and foreign gains include:
- earnings from working in another country
- profits from running a business in another country
- income from renting out a property in another country
- gains from selling or giving away overseas assets, for example, a house or shares
- interest on savings in overseas bank accounts
- other overseas investment income, for example, dividends on overseas shares.
The amount of UK tax you have to pay on foreign income and gains may sometimes depend on whether or not you bring money or goods into the UK.
However, note that foreign students usually don’t pay UK tax on foreign income and gains for income for maintenance, education and training – provided that immediately before coming to the UK you were resident in a country with which the UK has a double tax agreement containing this exemption. For more information, see GOV.UK.
If you are domiciled and resident in the UK you will pay UK tax on the ‘arising basis’. This means that you pay UK tax on your worldwide income and gains for the tax year in which they arise. It does not matter whether or not you bring the foreign income or gains to the UK.
If you have foreign income or foreign gains the arising basis can be complex. For example, if you have foreign income and foreign gains you will probably have to complete Self Assessment tax returns, and may have to deal with matters of double taxation. The main benefit of the arising basis, compared with the remittance basis, is that you will retain your personal allowance for income tax and the annual exempt amount for capital gains tax, if you are entitled to them.
If you are resident, but not domiciled in the UK, you may be able to choose the ‘remittance basis’ of taxation, if you have foreign income or foreign gains.
Under the remittance basis of taxation, you pay UK tax on UK income and UK gains for the tax year in which they arise, but you only pay UK tax on foreign income and foreign gains if and when they are brought (‘remitted’) to the UK.
For international students with foreign income or foreign gains the remittance basis can be complex. For example, you may be able to claim the benefit of limited exemptions (detailed below). If the exemptions do not apply to you, then you will have to complete Self Assessment tax returns. Although you will only pay UK tax on foreign income and gains brought into the UK, you will lose your personal allowance for income tax and the annual exempt amount for capital gains tax.
If you are not domiciled in the UK, you may be able to benefit from a special exemption, available to those who have foreign income or gains. This only applies if the unremitted foreign income or gains are less than £2,000 in a tax year.
The result if this exemption applies is as follows:
- The remittance basis applies without making a claim – this means you pay UK tax on your UK income and gains, and pay UK tax on any foreign income and gains that you remit (bring to the UK).
- You will not have to pay the Remittance Basis Charge, even if you have been resident in the UK for at least seven of the past nine tax years.
- You will continue to be entitled to UK tax allowances, including the personal allowance for income tax and the annual exempt amount for capital gains tax.
- You may not have to complete a Self Assessment tax return, if you have not been resident in the UK for seven of the last nine tax years, or if you are under 18 years of age unless you are sent a tax return by HMRC to complete or you have untaxed income or gains that you need to report to HMRC.
If you have overseas earnings, you might be able to claim the overseas work exemption. This is available to non-domiciled ‘foreign workers’ if all of the following conditions apply.
- You are resident in the UK.
- You are not domiciled in the UK.
- You are employed in the UK.
- You have not claimed to use the remittance basis of taxation in the UK.
- Your foreign employment income does not exceed £10,000 and it has been subject to tax in the country it arose (even if no tax was paid, for example because it was covered by a tax allowance in that country).
- Your foreign interest does not exceed £100, and is subject to tax in the country it arose.
- You have no other foreign capital gains and/or income.
- Your worldwide income and gains are less than the higher rate threshold for the tax year (£37,500 in 2019/20 after deducting personal allowances). In other words, you are a basic rate taxpayer. There are different tax thresholds for Scottish taxpayers.
- You are not required to complete a Self Assessment tax return for any other reason, for example, self-employment.
If all of the above conditions apply, you will be treated as being taxed in the UK on the arising basis, but because of the exemption you will not actually be liable to UK tax on your employment income from abroad, either when it arises or when it is brought to the UK. You will still be liable to UK tax on your UK income and gains.
If you are non-domiciled and have £2,000 or more of foreign income and/or gains that you leave outside the UK during a tax year, and you have been resident in the UK for fewer than seven of the past nine years (excluding the current tax year), then you can choose (referred to as "elect" by HMRC) to use the remittance basis instead of the arising basis.
If you elect to use the remittance basis:
- you must complete a Self Assessment tax return and make a claim to use the remittance basis on form SA109 ‘Residence, remittance basis etc.’ of your tax return;
- you will lose your entitlement to a range of UK personal allowances and the annual exempt amount for capital gains tax
- you must pay UK tax on your UK income and gains in the tax year in which they arise
- you must pay UK tax on the foreign income and gains that you remit (bring directly or indirectly) to the UK.
If you do not claim the remittance basis, you will be taxable on the arising basis. You must complete a Self Assessment tax return and include your worldwide income and gains. These will be subject to UK tax, but you will keep your UK allowances. Relief may be available to prevent double taxation.
If you find yourself in this position, you will need to take advice directly from HMRC (or a professional adviser) in order to understand what is necessary and to decide which regime is advantageous. You can find out more on our getting help page.
If you are non-domiciled and have been resident in the UK for at least seven out of the last nine tax years you will have to pay an annual charge (the Remittance Basis Charge) if you claim the remittance basis.
From 6 April 2015 there are higher remittance basis charges depending on the length of time you have been resident in the UK if you are claiming the remittance basis.
|Length of time resident in UK||Remittance Basis Charge|
|At least 7 out of last 9 years||£30,000|
|At least 12 out of last 14 years||£60,000|
The Remittance Basis Charge (of £30,000 or £60,000) must be paid in addition to any UK tax due on remittances to the UK, as well as any UK tax due on UK income and gains. This is only relevant to those with very large foreign incomes or gains.