Tax on Foreign Income, Explained
If you become a tax resident in the UK and start earning foreign income outside the UK (whilst staying in the UK), you need to consider how HMRC will treat your foreign income. You should also look into whether you will have to pay tax on these earnings in the UK.
This is because income from foreign incomes and gains will be taxable as UK income and be subject to UK tax rates. You will be entitled to credit any foreign tax you have paid against the UK tax liability.
If you are non-domiciled, then the amount of tax you will pay will depend on whether you can give assets or money into the UK.
Foreign Income and Foreign Gains
Some examples of foreign income and foreign gain include:
- Earnings from running a business in another country
- Dividends from shares in another country
- Interest from bank accounts outside the UK
- Rent from letting a property in another country
- Profits from the disposal of a property abroad
- Profits from the disposal of shares in a foreign company
- Foreign pensions, alimony, life insurance, and the like
What Happens If You Work in the UK and are Employed Overseas at the Same Time?
If you work in the UK and are also employed overseas at the same time, you need to know how the HMRC will handle your foreign employment income. You might avoid paying UK tax and filing a tax return if you can get a foreign workers' exemption.
You will be exempted if you have all the following conditions:
- You are employed in the UK;
- You are non-domiciled in the UK;
- You are a resident in the UK;
- Your total foreign earnings are not over £10,000;
- You have no other foreign gains or incomes;
- You are not required to have a Self Assessment tax return;
- Your total income from the UK employment and foreign employment is less than £100k per year;
- Your foreign income does not exceed the higher rate threshold for the tax year.
If all the conditions apply, you can get a foreign income exemption from the UK tax. However, it is important to note that you will still be liable to UK tax in terms of your UK earnings and gains.
What If You Are a Long-Term UK Resident?
If you are a long term UK resident or domiciled in the UK, and you are also working or getting paid from your overseas work and receiving foreign income, you will be taxable on the foreign income in the UK. This applies even if your earnings are below the £60,000 threshold.
If you are non-domiciled, you will only be taxed on the foreign income in the UK. Also, if you have recently become a UK resident, you will be taxed at the same rates as the UK residents.
If you are a non-domiciled, you can still avoid UK tax on the foreign income and gains if you can prove that you have been outside the UK for a total of 330 days during the tax year. If the foreign income is below the threshold of £60K per year, you can avoid UK tax, even if you have been a resident.
If you can show the HMRC that you have been a resident outside the UK during the previous tax year, you will not be liable to UK tax on the foreign income. As a result, you will not need to file an annual tax return.
It is important to note that the information provided in this article is intended to give you a basic understanding of taxes on foreign income. It is always best to seek independent advice from a qualified tax accountant before working abroad or earning foreign income.
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