Tax on foreign income as a UK resident

April 28, 2020 alistair bambridge

Many of our clients have income sourced from countries several countries throughout the world. Our accountants are expert on cross border taxation.

If you are a British Payer and receive income from a source outside of the United Kingdom, the income may be subject to UK Income Tax.

Do you need to pay UK Income tax on your foreign income?

Whether you are required to pay UK income tax on your foreign income will depend on your residency status. If you are not classed as a UK resident you will not have to pay UK tax on foreign income. If you are a UK resident, you will typically have to pay tax on your foreign income.

Statutory Residency Test Explained

The Statutory Residency Test (SRT) is a test that allows you to work out your residency status for the tax year.

The SRT takes into account:

· the amount of time you spend and, where relevant, work in the UK

· the connections you have with the UK

It is split into the following parts:

· automatic overseas tests

· automatic UK tests

· sufficient ties test

· application of the SRT to deceased persons

· split years

If you’ve been in the UK for 183 or more days you’ll be a UK resident. There is no need to consider any other tests.

You’ll be resident in the UK for a tax year and at all times in that tax year if:

· you do not meet any of the automatic overseas tests

· you meet one of the automatic UK tests or the sufficient ties test

Reporting foreign income

For those who are required to pay tax on foreign income, you usually will report the income on a Self Assessment Tax Return. However, there are some sources of foreign income that will be taxed differently.

Foreign income that is taxed differently

While most foreign income will be taxes in the same way that UK income is, there are special rules for:

Pensions
Rent from property
Certain types of employment income

Pensions

If you are a currently a resident or if you were a resident in any of the 5 previous tax years, you are required to pay tax on your pensions. You also pay tax on any foreign pension payments, including unauthorised payments like early payments and lump sums.

Rent from property

If you earn rental income off of more than one overseas property, you can offset losses from one overseas property against the other.

Certain employment income

Generally, employment income is reported on your self-assessment. However, there are special tax rules for those who work:

· on a ship or in the offshore gas or oil industry

· for the EU or government, or as a volunteer development worker

If your income is taxed in more than one country

If you are being taxed twice on foreign income you can apply for tax relief. This is valid for income:

-exempt from foreign tax but taxed in the UK

-made from a company that has a double-taxation treaty with the UK

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