Figuring out whether you need to pay tax on income earned outside of the UK depends on whether HMRC classifies you as a ‘UK Resident’.
If you are not classed as a UK Resident, you will not pay tax on your foreign income. UK Residents will pay UK tax on all of their income, no matter where it was earned. There are some special exceptions for those who permanently live abroad – we’ll cover those later.
Do I count as a UK Resident?
Your residence status usually depends on how many days you spend in the UK every year. This refers specifically to the tax year, which is 6 April to 5 April in the following year.
This means you need to pay attention to exactly when in the year you are abroad, and not count your year as 1 January to 31 December.
To be a UK Resident, you must:
- Pass one or more of the automatic UK tests.
- Fail all the automatic overseas tests.
If you pass any overseas tests, you’ll count as a non-resident for tax purposes.
You will count as a non-resident if either of the following apply:
- You spent fewer than 16 days in the UK (or 46 days if you have not been a UK resident for the 3 previous tax years).
- You worked abroad full-time (averaging at least 35 hours a week), and spent fewer than 91 days in the UK, of which no more than 30 were spent working.
You pass the automatic UK residency test if:
- You spent 183 or more days in the UK during the tax year.
- Your only home was in the UK for 91 days in a row or more AND you visited it for at least 30 days during the tax year.
- You worked full-time in the UK for 365 days, and at least one of those days were in the relevant tax year.
Is there an easy way to check my residence status?
You can use the government’s online residency checking tool here. You will need the following details:
- How many days you spent living and working in the UK and abroad.
- Roughly how many hours a week you worked.
- Family you have in the UK.
- Details of your home in the UK.
What if I live abroad?
If you have your permanent residence overseas, you may be classed as a ‘non-domiciled’ resident. This may get complicated to work out. If you’re unsure, don’t hesitate to contact us here or fill in the form at the bottom of the page – our accountants would be happy to assist you.
If you are ‘non-domiciled’, you will not pay UK tax on foreign income if:
- The foreign income totals less than £2,000 in the tax year; AND
- You do not bring them into the UK, for example by transferring them to a UK bank account.
If you earn more than £2,000 in foreign income, you will still have to pay UK tax on it. However, you may be able to claim it back if you have been taxed twice.
What if i'm getting taxed twice?
You can usually claim back some or all of the extra amount when you are taxed both in the UK and the country the income is from.
You can either apply for tax relief before you get taxed or after. If you have not yet been taxed, you will have to apply to the foreign tax authority. If you’ve already been taxed on the income, you can claim tax relief when you report the foreign income on your tax return. You can read our full post on how to claim tax relief when on double taxation.
How do I report my foreign income?
You will usually need to fill in a Self Assessment tax return if you’re classed as a UK Resident with foreign income.
However, you will not need to do so if all of the following apply:
- Your only foreign income is dividends.
- Your total dividends – including UK dividends – are less than the £2,000 dividend allowance.
- You have no other income to report.
What if I forgot to declare foreign income?
If you realise that you owe HMRC tax on foreign income, you will have to make a voluntary disclosure. You can find a guide to this process here.
This is preferable to waiting and hoping nobody notices, as you will be liable for much higher penalties if you find yourself with a notice from HMRC’s Worldwide Disclosure Facility.
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