Guidance

Tax on foreign income: rules for the tax year ending 5 April 2013

Published 6 April 2012

If you live in the UK but have your permanent home in another country, you may need to decide how you want to pay tax on any income and gains you earn abroad.

1. Residence and domicile

You’re probably ‘resident in the UK for tax purposes’ but ‘domiciled abroad’ if:

• you live most of the time in the UK
• you and your parents were born abroad
• your permanent home is abroad
• you intend to return to your home abroad

You might be treated as ‘not ordinarily resident’ in the UK if you come to the UK for less than 3 years, but there are many factors to consider.

Read part 3 of the published guidance HMRC6 which explains what is meant by ‘ordinarily resident in the UK’ and part 7 - Coming to the UK.

If your circumstances change after you first arrive in the UK, it’s possible that your ordinary residence status might change as a result.

1.1 How you pay tax

If you’re living in the UK and are domiciled abroad or not ordinarily resident in the UK, you can choose how you want to pay tax on your foreign income and gains. You can pay tax on one of the following:

• the ‘remittance basis’ - see the table below
• the ‘arising basis’ - you pay tax in the UK on all of your UK and foreign income and gains

2. If you choose to be taxed on the remittance basis

What you pay tax on depends on your residence and domicile status.

2.1 Not ordinarily resident in the UK and domiciled abroad

You’ll pay tax on:

• all your UK income and gains
• all your foreign gains
• the foreign income that you bring to the UK (but not foreign income that you leave abroad)

2.2 Resident in the UK for tax purposes but domiciled abroad

You’ll pay tax on:

• all your UK income and gains
• the foreign income and gains that you bring to the UK (but not foreign income and gains that you leave abroad)

2.3 Tax allowances and tax returns

You’ll lose your personal allowance and Capital Gains Tax annual exempt amount if in any year you:

• decide to be taxed on the remittance basis
• leave abroad £2,000 or more of foreign income and gains

If this is the case, you’ll have to submit a Self Assessment return each year. On the return you:

• can opt to be taxed on the remittance basis
• tell HM Revenue and Customs about the foreign income and gains you’ve brought into the UK
• may be able to claim relief for any foreign tax you’ve paid on the income and gains

2.4 If your foreign income and gains that you leave offshore are under £2,000

If the foreign income and gains that you leave outside the UK in a tax year are £2,000 or less, you can use the remittance basis without making a claim or completing a Self Assessment return. You’ll also be able to keep your UK personal allowances and Capital Gains Tax annual exempt amount.

However, if you bring more than £500 of your income and gains into the UK you must still complete a tax return to tell HMRC about it and pay UK tax on it.

2.5 The remittance basis charge

If you’ve been resident in the UK for more than 7 out of the previous 9 tax years, excluding the current tax year, you may have to pay a £30,000 charge each year.

If you’ve been resident for 12 or more years, excluding the current tax year, the charge rises to £50,000 each year.

3. If you don’t choose to be taxed on the remittance basis

If you don’t choose to be taxed on the remittance basis, you’ll automatically be taxed on the arising basis. This means you:

• keep your personal allowances and Capital Gains Tax annual exempt amount
• pay tax on all your foreign income and gains
• may be able to claim relief, if you’ve already paid tax abroad
• don’t have to pay the remittance basis charge
• have to submit a Self Assessment return