Category: Overseas tax issues

Are you paying unnecessary tax on foreign income?

UK taxpayers with income from overseas may not always be aware of the tax rules that apply.  Foreign income is defined as any income from outside England, Scotland, Wales and Northern Ireland. The Channel Islands and the Isle of Man are classed as foreign. Different rules may apply if you’re eligible for Foreign Income and Gains relief.

Foreign income can include wages from working abroad, overseas dividends and savings interest, rental income from foreign property, and pensions held outside the UK.

Whether UK tax is due depends mainly on your UK residence status. If you are not UK resident, you will not usually pay UK tax on your foreign income. However, UK residents will generally need to pay tax on worldwide income unless a specific exemption or relief applies.

Since 6 April 2025, changes to the rules affecting individuals who previously relied on their overseas domicile status mean that some people may need to review how their foreign income and gains are taxed. Eligible individuals may be able to claim Foreign Income and Gains (FIG) relief, depending on their circumstances.

Foreign income that is taxable in the UK is normally reported through a self-assessment tax return, although some types of income have different rules.

If the same income is taxed in both the UK and another country, you may be able to claim relief to prevent double taxation. In some cases, you may need a certificate of residence from HMRC to confirm your entitlement to relief.

Transfers of assets abroad

A new rule aimed at preventing individuals from using companies to avoid taxes through the Transfer of Assets Abroad (ToAA) provisions applies to income arising to persons abroad on and after 6 April 2024.

This change affects UK residents who own or have a financial interest in UK resident close companies or non-resident companies that would be close if they were resident in the UK. Affected individuals will have used companies to transfer assets to a separate non-resident person, or to a non-domiciled individual.

The new rule introduces a provision that deems individuals who are participators in a close company, or a non-resident company that would be close if they were UK resident, as transferors to address situations where such companies make transfers. This change ensures that a transfer made via a company, in which the individual is an owner or has a financial interest, will be considered a ‘relevant transfer’ by that individual for the purposes of the ToAA legislation.

This change should not affect genuine commercial transactions or transfers that are not aimed at avoiding tax, as outlined in sections 736 to 742 of the Income Tax Act 2007.