How are foreign gains and income taxed?

Foreign income tax and the amount you’ll pay depend on various factors.

By staying on top of current taxes, you may prevent yourself from receiving a surprise tax bill.   

There are various types of income you may pay tax on, and the rules on UK residency can be complex.

This guide on foreign gains and income tax will help you understand the fundamental rules and outline the tax you can expect to pay if you earn money from outside the UK. 

Paying tax on foreign gains and income

Foreign income is anything earned from outside England, Scotland, Wales and Northern Ireland.

If you only earn income from any of these four countries, the associated tax is relatively simple.

But if you are a resident of the UK and earn foreign gains and income, tax can become more complex. 

You can earn foreign income and gains in many ways.

These can include: 

• Earnings from work performed outside the UK.

• Profits from a foreign business that you run or have shares in. 

• Income from overseas property rentals.

• Profits from the sale of overseas assets — such as property or shares in a company. 

• Interest earned through foreign savings accounts. 

• Pension income from overseas.

Am I a UK resident?

Working out whether you are a resident of the UK is key to determining whether you’ll have to pay foreign gains and income tax and how much.  

According to HMRC, you are a UK resident if you have: 

• Spent 183 days or more in the UK during the tax year.

• Your only home (owned or rented) was in the UK for 91 days or more in a row, and you spent at least 30 days of a tax year in it.  

It’s important to note you can be a UK resident even if your permanent home is abroad.

Whether you are a ‘domiciled’ or ‘non-domiciled’ resident depends on specific criteria and will impact how foreign gains and income tax will affect you.  

Domiciled and non-domiciled residency

‘Domiciled’ refers to where your ‘permanent’ home is.

So, if you are domiciled in the UK, it is considered your permanent home — for tax purposes and otherwise.    

As a domiciled (or ‘deemed domiciled’) UK resident, you must pay UK tax on all your income and gains.

However, if you are not domiciled (also known as 'non-dom'), the way foreign tax impacts you may be different.  

During the Spring Budget in March, it was announced the non-dom status will be scrapped and replaced with a new 'modern residency system’ in April 2025.

This new system will ensure all UK residents who stay in the UK for over four years pay the same tax on their foreign income and gains, regardless of their domicile status.

The UK government will offer existing non-doms a lower tax rate of 12% on income and capital they bring into the UK over the 2025/26 and 2026/27 tax years.

There will also be a 50% exemption on tax on foreign income in the tax year 2025/26.

It's a good idea to seek expert advice to support your finances, especially with the planned changes next year.

Unbiased can quickly find you an accountant who will help you every step of the way.   

Can I claim overseas workday relief?

Before we reveal the upcoming proposed reform of the overseas workday relief following the Spring Budget, it's worth revealing how it works. 

If you are non-domiciled in the UK and work here, having not been a UK resident for at least the three previous tax years, you may be able to claim tax relief on earnings relating to your ‘overseas workdays’ in your first three tax years of residence in the UK.  

Tax relief is available to taxpayers who claim the remittance basis of taxation.

This means: 

• You pay UK tax only on the gains or income brought into the UK.
• You lose your tax-free personal allowance and capital gains tax (CGT) allowance.
• You pay £30,000 or £60,000 — this fee depends on how long you have been a UK resident.

You also won’t pay UK tax if you have less than £2,000 of foreign income and keep it abroad. 

It’s important to note if you meet certain conditions, even as a non-domiciled UK resident, HMRC will still treat you as a domiciled resident, also known as ‘deemed domiciled’, meaning you can’t choose to claim this remittance basis of taxation.  

To claim overseas workday relief, you need to meet the criteria set out by HMRC.  

A reform of overseas workday relief has been proposed where income tax relief is still available for earnings from working overseas in the first three years of tax residence but with restrictions on remitting these earnings removed.

Eligibility for overseas workday relief will change as it’ll be based on the new proposed regime.

Paying tax as a domiciled UK resident

As a domiciled or deemed domiciled resident in the UK, you must pay UK tax on an ‘arising’ basis.

This means you’ll need to pay tax on all your income and gains from the UK and abroad, regardless of whether you bring it into the UK.  

Paying tax as a non-domiciled UK resident

As a non-domiciled UK resident, you can pay tax on UK income and gains under the remittance basis of taxation for the tax year in which your income and gains arise.

However, you will only pay UK tax on foreign income and gains when you bring them (they are ‘remitted’) to the UK.

This should help to prevent double taxation.  

The remittance of taxation applies automatically to those with unremitted foreign income or gains of less than £2,000 per tax year. 

Need expert advice?

Navigating foreign taxation in the UK can be challenging, but we’re here to help.

Unbiased can connect you with a qualified accountant who will help guide you through the process and protect your income.