Calculating the UK tax on foreign income is a key consideration if you have overseas assets or are receiving money from abroad. Although there are rules to ensure that you will not be taxed in more than one country, it is essential to educate yourself so you are not caught out by complicated regulations.
Do I have to pay tax on money transferred from overseas to the UK?
There are usually tax implications when transferring money to the UK. The extent of any liability depends on factors such as the nature of the overseas income and your residency status.
Seeking guidance from a tax expert or consulting the UK Government guidelines is recommended to determine the relevant taxation regulations and obligations pertaining to overseas transfers.
A self-assessment tax return must be completed if you are a UK resident with foreign income or capital gains.
What is foreign income?
Foreign income, according to the UK Government website, encompasses earnings derived from territories beyond the borders of England, Scotland, Wales and Northern Ireland. Notably, the Channel Islands and the Isle of Man are categorised as foreign in this respect.
What types of foreign income are taxed?
UK citizens may need to pay tax on foreign income. The most common form is Income Tax, which you will need to pay on:
- Foreign investment income (e.g. dividends and savings interest)
- Wages (if you work abroad)
- Rental income on overseas property
- Income from pensions held overseas
Paying tax will depend on whether you are a UK resident. (Residency status is explained below.) If you are not a UK resident, you will only have to pay tax on the income you earn in the UK.
If your income has been taxed twice, by the UK Government and the country you work in, you can claim Foreign Tax Credit Relief (FTCR). How much you can claim back depends on double taxation agreements and limits vary from country to country. Your type of income may also affect how much you receive back when claiming FTCR.
Paying tax on foreign dividends
Dividends from shares in overseas companies are likely to be paid in the currency of the country where they are based (or multiple currencies if your portfolio includes shares in companies worldwide). If these dividends amount to less than £2,000 and you have no other income to report, you do not need to fill in a tax return.
UK high-street banks may not offer the specialist service you need to make these often complex transactions. So financially it is worth looking into using a currency exchange provider that understands your requirements when paying UK tax on foreign income and specialises in the tax treatment of foreign dividends.
The Telegraph Media Group International Money Transfer Service is provided by currency experts Moneycorp to help you with all your money transfer needs. Moneycorp’s dedicated account managers can help you understand the foreign exchange implications of your tax requirements so that you can confidently make decisions about your money.
TIP: If you have a foreign income from dividends amounting to less than £2,000 and you have no other income to report, you do not need to fill in a tax return.
Repatriating salary back to the UK
Generally, you will pay tax in the country in which you earn your salary. As we mentioned, the UK has double taxation treaties with many countries across the globe and you can usually claim FTCR if there is not a treaty in place.
Those who receive a salary in a foreign currency and send it back to the UK may find the amount will vary from month to month. This is not just because of the tax deducted from these earnings but also because of fluctuations in the currency markets, which means the value of your international salary may differ.
It can be helpful to plan ahead to minimise the effect of this. For instance, an expert foreign exchange provider can arrange a forward contract* for you, which can fix the rate for up to two years, giving you certainty over your income.
Example
- Mr Smith works in Dubai, has interests in the UK, and is paid in dirhams (AED)
- He secures a forward contract at a rate of 0.2543 AED-GBP for his salary for the next 12 months
- Four months later, the exchange rate has fallen to 0.2199 AED-GBP
- Result Mr Smith’s salary is effectively now 15.6 per cent higher because he is still exchanging at the higher rate. On a salary of 500,000 AED (about £127,000), this equates to more than £17,000 extra over a year.
Tax implications on property abroad
It is not just income from work overseas that can be taxed. UK taxpayers must notify HM Revenue & Customs (HMRC) about their interests abroad, including Inheritance, Income and Capital Gains Tax. Legislation originally published in 2017 stipulates the ‘Requirement to Correct’, which means people are liable for significant penalties for not paying tax on their overseas assets.
There are tax implications when buying or selling property abroad, and understanding how much money such a transaction may cost you is critical when you know there is a tax bill to factor in.
Overseas property transactions come with the added complications of exchange rate fluctuations, which means knowing the final cost for your interests and your tax bill is not always easy.
Example
- Mrs Jones agrees to sell an apartment in Paris for €500k
- The exchange rate at this point is 0.8969 EUR-GBP so she calculates she will receive £448,45
- By the time she completes the sale, the exchange rate falls to 0.868 EUR-GBP
- Result Mrs Jones will now receive only £434,000 – £14,450 less than anticipated.
Legal fees, currency transfer costs and the exchange rate will all impact the final amount you receive and, therefore, what you have to pay in tax.
This is another reason to use a foreign exchange specialist, who can help you navigate the choppy waters of foreign exchange and guide you on using currency tools to best suit your investment requirements and risk appetite.
How to work out your residency status for tax purposes
UK residency usually depends on how many days you have spent in the country during the tax year (April 6 to April 5 the following year).
Residents will usually:
- Have spent 183 or more days in the UK in a tax year
- Have a UK home for 91 days or more in a row and have stayed in that home for at least 30 days
- Worked full-time for at least one day in the 365-day tax-year period
Non-residents will usually:
- Have spent fewer than 16 days in the UK (or 46 days if you have not been a UK resident for the previous three tax years)
- Worked abroad full-time (for an average of 35 hours a week) and spent fewer than 91 days in the UK (with no more than 30 days spent working)
If you are unsure about your residency status, the UK Government website has a status checker where you can find out.
If someone transfers money into my bank account, do I need to pay UK tax?
Receiving funds in your bank account does not automatically incur a tax liability in the UK. Tax obligations depend on the nature and origin of the income rather than the manner of receipt. It is essential to consider the specific circumstances surrounding the transferred funds, such as whether they qualify as taxable income, gifts or inheritances, alongside relevant tax laws and regulations.
Seeking guidance from tax experts or referring to the UK Government guidelines can help you assess any potential tax implications tied to the funds received in your bank account.
Declaring foreign bank accounts to HMRC
HMRC requires you to declare all taxable income and gains on your tax return. If you have done this, HMRC does not require disclosing non-interest-bearing overseas bank accounts.
Make overseas payments with confidence
The Telegraph Media Group International Money Transfer Service is provided by Moneycorp to offer fee-free transfers in more than 120 currencies at competitive rates. Through the service, you will also have access to currency experts who can personally guide you through the exchange process, as well as a dedicated account manager and 24/7 secure online access, so you can make your money go further in a way that works for you.
- Open an account today to find competitive exchange rates, plus no transfer fees via Telegraph Media Group International Money Transfers
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The above article was created for Telegraph Financial Solutions, a member of The Telegraph Media Group.
*Forward contracts may require a deposit
Be aware of currency risk.
None of the information contained in this article constitutes, nor should be construed as financial advice. TTT Moneycorp Limited (company number 738837) is registered in England. Its registered office is at Floor 5, Zig Zag Building, 70 Victoria Street, London, SW1E 6SQ. Moneycorp is a trading name of TTT Moneycorp Limited, which is authorised and regulated by the Financial Conduct Authority for the provision of payment services (firm reference number 308919). Date of approval 06/07/2023
