Should you be paying UK tax on overseas income?
Understanding the rules around paying UK tax on overseas income is essential for both UK residents and non-residents with international financial interests. Many individuals mistakenly believe that income earned abroad stays outside HMRC’s reach, but this is not always the case. To avoid penalties and ensure compliance, it is vital to know where you stand.
Who is liable to pay UK tax on overseas income?
The starting point is your residency status. If you’re considered a UK resident, you’ll typically need to pay UK tax on your worldwide income. Non-residents usually only pay UK tax on income generated within the UK, such as rental properties or business activities located here.
Your domicile status can also influence tax obligations. Previously, non-domiciled residents could elect to be taxed under the remittance basis, where only overseas income brought into the UK was subject to tax.
However, from 6 April, HMRC has abolished the remittance basis and introduced what is known as the FIG regime. Those who have claimed the remittance basis in the past will still be liable to UK tax if they remit income that was subject to a remittance basis claim. However they could utilise the Temporary Repatriation facility which is open for 2025/26, 2026/27 and 2027/28.
What is the FIG regime?
- Provided you have note been resident for 10 years prior to your arrival in the UK then for the first four years of your residence you will only pay tax on your UK income and will be able to receive overseas income tax-free even if it is remitted to the UK.
- The new rules apply from 6 April 2025 but those who arrived in 2022/23 or later can still be eligible for the FIG regime even though they were already resident when the new rules came in.
- There is no longer a separate charge to remain on the remittance basis for longer term residents, so once you have been resident in the UK for 4 years you will become liable UK taxes on your worldwide income & gains.
These changes have a significant impact on how non-domiciled individuals structure their assets and income. It is now essential to review and potentially reorganise your finances, particularly if you have significant overseas investments or multiple income streams.
UK tax on overseas income – types of overseas income subject to UK tax
The main sources of overseas income that could trigger a UK tax liability include the following:
- Rental income: Income from overseas property is taxable in the UK, though you may offset some foreign tax paid against your UK liability.
- Employment income: If you’re employed by an overseas employer but resident in the UK, your salary is taxable here unless you are eligible for the FIG regime where it may be possible to claim Overseas Workday Relief.
- Business profits: Profits from running a business abroad are subject to UK tax if you’re resident here. Please note a self-employment has to be operated 100% outside the UK for it to be eligible for the FIG regime.
- Investment income: Interest, dividends, and gains from overseas investments are generally taxable, although relief for foreign tax paid might be available.
Avoiding double taxation
Many people worry about being taxed twice on the same income – once overseas and once in the UK. Fortunately, the UK legislation permits double tax relief for overseas taxes paid on the same income or gains. The UK also has double taxation agreements with over 100 countries, which can reduce your exposure to overseas taxes.
Reporting your overseas income to HMRC
If you earn income abroad, you’re required to report it to HMRC through a self assessment tax return. This applies even if tax was already deducted abroad. In particular US Citizens who are taxable on their worldwide income in the US are still subject to UK taxes on their worldwide income. HMRC expects transparency, and failure to declare overseas income can result in penalties and interest charges.
Penalties and compliance – getting it right
HMRC actively pursues cases of undeclared overseas income. In 2024 alone, HMRC identified over £400m through investigations of undeclared offshore income. Penalties are more severe if HMRC find you first so to mitigate this risk, it’s essential to seek professional advice as soon as possible.
UK tax on overseas income – get the right advice – talk to us
At RPG Crouch Chapman, we specialise in international tax planning and compliance. We regularly advise clients on residency and domicile status, ensuring they pay the correct amount of UK tax without overpaying or risking penalties.
Our dedicated international tax team regularly make worldwide disclosures to help clients bring their affairs up to date and can offer clear, practical advice. Whether you’re an expat, a returning UK resident or have overseas assets, we help simplify your tax obligations, ensuring compliance and peace of mind.
If you’re concerned about paying UK tax on overseas income or need guidance tailored to your circumstances, contact us today. Our international tax experts can help ensure you remain compliant while optimising your tax position.
