Tax on Foreign Income in the UK: Do I Need to Pay?

Understanding if You Have to Pay UK Tax

We get asked this question a lot. So often in fact that we decided it’s a subject worth covering in a blog. In most cases, there is a simple answer to this question.

If you are not a UK resident, you won’t need to pay tax in the UK. If you are a UK resident, you will indeed have to pay tax on your foreign income. However, you may not have to if your permanent home is abroad.

Please be aware: In the Spring Budget of 2024, the government unveiled significant changes for UK-resident taxpayers concerning the taxation of non-UK income and gains, effective from April 2025. The taxpayer’s domicile and the remittance of such income and gains to the UK will no longer factor into determining the UK income tax liability. Instead, taxpayers can exclude such income and gains from UK tax for a limited period, provided certain conditions are met.

How does HMRC define a UK resident?

According to the gov.uk website;

You’re automatically a resident if either:

you spent 183 or more days in the UK in the tax year
your only home was in the UK – you must have owned, rented or lived in it for at least 91 days in total – and you spent at least 30 days there in the tax year

You’re automatically a non-resident if either:

you spent fewer than 16 days in the UK (or 46 days if you have not been classed as UK resident for the 3 previous tax years)
you work abroad full-time (averaging at least 35 hours a week) and spent fewer than 91 days in the UK, of which no more than 30 were spent working

Which types of foreign income might you need to pay tax on?

You may need to pay UK Income Tax on foreign income, such as:

Wages (earned abroad)

If you earn wages while working in another country, this income may still be subject to UK Income Tax. It’s essential to understand the specific tax implications of employment income earned overseas, as these can vary depending on the nature of your work and your residency status.

Foreign investments and savings interest

Income generated from investments or savings held in foreign banks or financial institutions may be taxable in the UK. This includes interest earned on deposits, dividends from foreign stocks, and any other investment returns.

Rental income on overseas properties

If you own property abroad and receive rental income, this income must be declared and may be subject to UK tax. Properly accounting for expenses and deductions can help mitigate your tax liability.

Income from pensions held abroad

Pensions from overseas sources can also be taxable. Whether you’re receiving a state pension from another country or private pension payments, it’s vital to understand how these are taxed under UK law.

Additionally, employment income earned abroad may have specific tax implications. Foreign income is classed as anything from outside England, Scotland, Wales and Northern Ireland, including income and gains. The UK Foreign Income and Gains (FIG) regime also affects how foreign income and gains are disclosed and taxed.

Navigating the New Tax Landscape

With the upcoming changes from 6 April 2025, taxpayers can expect shifts in how foreign income is treated. Under the new residence-based taxation regime, the remittance basis will no longer apply. Instead, taxpayers will need to report and pay tax on worldwide income and gains, regardless of domicile status.

Claiming Tax Relief

For individuals taxed in multiple countries, there may be opportunities to claim tax relief. This can help avoid double taxation and reduce your overall tax burden. We can assist you in understanding your eligibility for relief and guide you through the process.

Capital Gains Tax Implications

Non-domiciled individuals must also consider the implications of capital gains tax. The new rules may affect how gains from foreign assets are taxed, necessitating careful planning and reporting to ensure compliance and optimise tax outcomes.

Tailored Advice for Your Situation

Everyone’s tax situation is unique, and the intricacies of foreign income taxation can be challenging to navigate. If you’re unsure about your obligations or how the new rules affect you, it’s wise to seek professional advice. We’re here to help you understand and manage your UK tax affairs, providing clarity and peace of mind.

The changes to non-domiciled status and the new taxation regime for foreign income represent significant shifts in UK tax policy. Ensuring you’re prepared and compliant is key to avoiding unexpected tax liabilities and making the most of available reliefs and allowances.

Contact Us for Expert Guidance

Don’t navigate these changes alone. Contact us today for expert guidance on how to manage your foreign income and tax obligations effectively. We can help you understand the new rules, claim any applicable tax relief, and ensure your tax affairs are in order.