Tax return service requirements for foreign income in the UK
UK Income tax
If you are non-domiciled. You can file your UK income tax return on the arising basis (reporting world-wide income/gains) or the remittance basis (reporting non-UK income/gains only if remitted to the UK). If you have been tax resident in the UK for 7 of the 9 previous tax years you will need to pay a Remittance Basis Charge (RBC) of £30,000 if you want to file your tax return on the remittance basis (unless your unremitted foreign income/gain totals less than £2,000 per year). If you have been tax resident for 12 of the 14 previous tax years the RBC increases to £60,000. There is a further increase in the RBC to £90,000. If you have been tax resident for 17 of the 20 previous tax years.
What is the remittance basis of taxation?
If you are resident, but non domiciled in the UK, you may be able to choose the remittance basis of taxation. If you have foreign income or foreign gains. Please note that with effect from 6 April 2017, if you meet certain conditions. Even if you are resident and non domiciled in the UK. HMRC treat you as resident and domiciled in the UK or ‘deemed domiciled’. You cannot choose the remittance basis of taxation.
Income Tax is generally payable on taxable income received by individuals including earnings from employment, earnings from self-employment, pensions income, interest on most savings, dividend income, rental income and trust income. The tax rules for foreign income can be complex. However, if you are resident in the UK. You will need to pay UK income tax on your foreign income.
Under the remittance basis of taxation. You pay UK tax on UK income and gains for the tax year in which they arise. But you only pay UK tax on foreign income and foreign gains. When they are brought (or ‘remitted’) to the UK. In practice, the remittance basis can help to prevent double taxation.
If you are a UK resident. You will usually need to complete a Self-Assessment tax return for foreign income or capital gains. The main exception is if your only foreign income is dividend and if your total dividends – including UK dividends – are less than the £2,000 dividend allowance or you have no other income to report.
There are also two other special cases relevant to low-income migrants. Firstly, if you have no (or very little) UK income, the remittance basis can apply automatically even if your unremitted foreign income and gains exceed £2,000. Secondly, if you are employ in the UK with a small amount of foreign earnings or income which is tax at source. The ‘foreign workers’ exemption’ can apply which means the foreign earnings are exempt from UK tax.
What kinds of foreign income will you pay tax on?
Most types of income will tax the same way as any UK income:
- wages if you work abroad
- self assessment tax return
- foreign investments and savings interest
- rental income on overseas property
- income from pensions held overseas
Foreign income is define as any income from outside England, Scotland, Wales and Northern Ireland. The Channel Islands and the Isle of Man are classed as foreign.
You may also need to fill in a tax return and pay self assessment tax if you have moved abroad in the last year and work as self-employed in the UK or earned any untaxed income in the tax year preceding your move.
If you are living abroad but are still a UK resident for tax purposes. You will have to file an annual tax return detailing all untaxed worldwide income. UK expats who are no longer UK resident, along with non-UK nationals earning an income in the UK. Non UK nationals need to file an annual tax return detailing all untaxed UK income.
Non residents usually do not have to pay either Capital Gains Tax or Inheritance Tax. More information is available from the UK government.
Renting property in the UK can also pay tax on this income through their letting agent or tenant. This means it will not have to declare on the annual tax return.
How reducing your liabilities when tax filing abroad?
- Ensure that you hold any immovable assets situated in the UK, for example, property, in joint names with your spouse/partner for tax mitigation.
- Transfer movable cash assets into an offshore bank account. These are accounts that are part of UK banks but with favourable tax arrangements. It ensure that any interest earn is not subject to tax while you remain overseas.
- Consolidate your UK pension entitlements by transferring your UK occupational pension scheme or Personal Pension Plan to a Qualifying Recognised Overseas Pension Scheme.
- Look into the possibility of claiming an income tax refund on departing the UK. If you have been employed in the UK before leaving, you may not have received the full benefit of the personal tax allowance you’re entitled to through your salary. If this is the case, you might be able to recover some of the tax already paid through PAYE.
- Register under the Non-Resident Landlord Scheme if you are letting out property in the UK. If you are approve under this scheme. You can receive rental income without any tax deductions.
It is a good idea to sit down and have a discussion with a financial advisor or tax expert before moving. They can advise you on how to plan your finances and meet your UK tax obligations once you relocate abroad.