Does a UK Tax Resident need to pay tax on Foreign Investment Income?

Many of our UK clients ask about the tax treatment of their overseas investments. The good news is that their foreign investment income may not be taxed by HMRC. This is because UK residents who have their permanent home (‘domicile’) outside the UK may not have to pay UK tax on foreign income. The same rules apply if you make any foreign capital gains, for example you sell shares or a second home.

Domicile is a complex topic and professional advice is suggested.  In short, your domicile’s usually the country your father considered his permanent home when you were born.  It may have changed if you moved abroad and you don’t intend to return.

If you’re non-domiciled –

  1. You don’t pay UK tax on your foreign income or gains if both:
    • they’re less than £2,000 in the tax year
    • you don’t bring them into the UK, for example you transfer them to a UK bank account
    • Chapter 9 in HMRC’s guidance on ‘Residence, Domicile and the Remittance Basis’ explains the rules for bringing income or gains to the UK.

    2. If your income is £2,000 or more

  • You must report foreign income or gains of £2,000 or more, or any money that you bring to the UK, in a Self Assessment tax return.
  • You can either: pay UK tax on them – you may be able to claim it back or claim the ‘remittance basis’

    3. Claiming the remittance basis is complicated and professional advice is suggested.Claiming the remittance basis means you only pay UK tax on the income or gains you bring to the UK, but you:

  • lose tax-free allowances for Income Tax and Capital Gains Tax (some ‘dual residents’ may keep them)
  • pay an annual charge if you’ve been resident of the UK for a certain amount of time
  • You pay an annual charge of either:
    • £30,000 if you’ve been here for at least 7 of the previous 9 tax years
    • £60,000 for at least 12 of the previous 14 tax years
    • £90,000 for at least 17 of the previous 20 tax years

What If you work in the UK and abroad

There are special rules if you work both in the UK and abroad.

You don’t have to pay tax on foreign income or gains (even those you bring into the UK) if you get the ‘foreign workers’ exemption’.

You qualify if:

  • your income from your overseas job is less than £10,000
  • your other foreign income (such as bank interest) is less than £100
  • all your foreign income has been subject to foreign tax (even if you didn’t have to pay, for example because of a tax-free allowance)
  • your combined UK and foreign income is within the band for basic rate Income Tax
  • you don’t need to fill in a tax return for any other reason

If you qualify, you don’t need to do anything to claim.

If you’re seconded to the UK

You may be able to claim Overseas Workday Relief if your employer sends you to work in the UK on secondment.

If you qualify you:

  • pay UK tax on UK employment income based on the number of days you’ve worked here
  • don’t pay tax on income from days you work abroad (as long as you don’t bring it into the UK)

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