Tax Implications of Transferring Money to UK from Abroad

It is very easy to pay tax on income if you are earning only from UK and not from any other country of the world whereas it is considered that an individual may face difficulty in paying UK tax in case he or she is earning foreign income & gains.

In this blog, we will discuss and try to understand the taxability of foreign income and gains in UK.

Tax Implications of Transferring Money to UK from Abroad

When to obtain U1 Form?

If you are planning to leave your country to work in some other country in EU, you need to request U1 Form before leaving the country in order to avail unemployment benefits in the new country. The detail on U1 Form is used by the individual to establish his or her entitlement for unemployment benefits.

Is there any need to pay tax on money transferred from overseas?

Residential status is the most important thing and the deciding factor that whether you need to pay tax in UK or not. In case you are non-resident and earning abroad, there is no need for you to pay tax in UK but if you are a UK resident and earning income from abroad, you need to pay tax on your foreign income.

Given below are some of the situations where you may have to pay UK tax on your foreign income. Your salary is taxable –

If you are a UK resident and earning income from abroad
If you are a UK resident and earning interest on your investment & savings from abroad.
If you are a UK resident and earning rent from property situated in another country.
If you are a UK resident and earning income through pensions from abroad.

You need to declare your foreign income at the time of submitting self-assessment tax return to HMRC but not all foreign earnings are taxed in the same way.

In case your income is taxable in more than one country, you can apply for tax relief. To apply for tax relief, you need to apply for residence certificate to prove your eligibility.

Tax implications of transferring money to UK from overseas

If you want to know that whether you need to pay UK tax or not, you need to evaluate your residential status. Individuals who are residing in UK need to pay tax on all their earnings whereas non-resident earning income abroad is non-taxable in UK. However, there are special rules for UK residents that are having permanent home abroad.

Residential status of an individual depends upon the number of days you stay in UK in a relevant tax year (6th April to 5th April of next year).

Residential status is of various types and the same is discussed below –

Resident status – You will be considered as a UK resident, if you fulfill either one of the conditions mentioned below –
- In case you spent 183 days or more in UK in a relevant tax year
- In case your only home was in UK and you must have owned, rented or lived in the house for not less than 91 days in total & 30 days in a relevant tax year.
Non-resident – You will be considered as an Non-resident, if you fulfill either one of the conditions mentioned below –
- In case you spent less than 16 days in UK (46 days in case you considered as UK resident in previous 3 years)
- In case you work abroad full time (35 hours a week on an average) and spent less than 91 days in UK out of which no more than 30 days are spent in work.
Resident status when you move – When you continuously move in or out of UK in a relevant tax year, your residential status is impacted and divided into 2 parts –
- Non-resident part
- Resident part

You only need to pay UK tax on your foreign income during the time of your stay. It is also known as Split year treatment. You will not be eligible for split year treatment if you live in a foreign country for less than a full tax year before returning to UK.

In order to find out that whether you qualify for split year treatment or not, you need to contact HMRC or you can read the information provided by HMRC on the Statutory Residence Test

There are some other conditions which we have to meet in case of split year treatment. You need to mention this information on your self-assessment tax return too.

Residential Status in case your situation changes

An individual status can be changed from one tax year to another. In case your situation changes, you can check your status by taking the following points into consideration –

In case you are spending more or less time in UK
In case you are buying or selling home in UK
In case you are changing your job
In case your family moves in or out of the UK or in case of marriage or in case of separation or child birth.

Residence & Capital Gains

If we talk about capital gains, one thing comes into our mind that whether we have to pay tax on the income we are earning from selling shares or second home as we are doing in case of our earned income. The residents of UK must pay tax on their UK as well as foreign gains whereas non-residents only need to pay tax on income they are earning from UK & on capital gains tax applicable on either of the following –

UK land or property
After returning to UK

Residence before April 2013

There are different rules applicable in order to work out your residential status before 6th April 2013.

Tax on foreign income for Non-Domiciled Residents

UK residents who are having their permanent house outside UK may not have to pay UK tax on their foreign income.

Note – This rule also applies in case you are earning foreign capital gains. For ex – Selling of shares or second home.

Working out your Domicile

Domicile country is a country where your father owns a permanent residency after your birth. It may change in case if you will move abroad and have no intention to come back.

In case you want to work out which country you are domiciled in, you can do so by –

Reading HMRC guidance on residence, domicile and remittance basis
Taking the help of tax advisor.

Tax on foreign income if you are non-domiciled

There is no need to pay UK tax on your foreign income or gains if you satisfy both of the conditions mentioned below –

If your foreign income or gains are less than £2000 in a relevant tax year
If you are not bringing them to UK. Ex – Transferring into a UK bank account

If you satisfy both the above conditions, you don’t need to do anything.

If your foreign income or gain is more than £2000 or you are bringing back any money to UK, you have to mandatorily report it to HMRC in self-assessment tax return. In such cases, you can either –
- Pay UK tax on them – you may be able to claim it back.
- Claim the “remittance basis”

When you only pay UK tax on the income or gains you bring to the UK, it is known as claiming the remittance basis. By claiming the remittance basis, you will –

Lose tax free allowances of capital gains tax & Income tax
Pay an annual charge for some time if you are a UK resident.

Annual charges

Any UK resident claiming for remittance basis need to pay an annual charge of either –

£30000 (In case you are here for at least 7 out of 9 previous tax years)
£60000 (In case you are here for at least 12 out of 14 previous tax years)

Claiming the remittance basis is not an easy task. Therefore, people prefer –

Contacting HMRC
Taking professional help from a tax advisor

Tax on foreign income if you work in UK & abroad

There are many individuals who work in UK as well as abroad. Special rules are listed in UK tax law for those individuals. As per special laws, you don’t have to pay any tax on foreign income or gains (even you bring the money into UK) if you get foreign worker’s exemption. Not every person is eligible for foreign worker’s exemption. You can qualify for it after satisfying the following conditions mentioned below–

If your income from job abroad is less than £10000
If your income from foreign country is less than £100. For ex –Bank interest from foreign country.
If the total of your UK & Foreign income comes under the basic rate band of UK Income tax.
If all your foreign income has been subject to foreign tax because of tax free allowance.
If you are not filling the tax return for any other reason.

If you qualify in one of the conditions above, you are eligible for foreign worker’s exemption.

Tax on foreign income if you are seconded to UK

In case if your employer sends you for work in UK on secondment, you may be eligible to claim overseas workday relief. In case you get qualified for “overseas workday relief” –

You need to pay tax on your employment income to the UK government based on number of days you worked here.
You need not to pay any tax on Income from days you worked abroad (as long as you are not bringing it into UK)

Paying tax on foreign income

If you are a UK resident and earning foreign income or capital gains, you should fill that information in your self-assessment tax return. Some foreign incomes are taxed differently. In case if your foreign income i.e. dividend is less than £300, you don’t have to report anything.

Note – In case if your permanent home is abroad, different rules will apply.

Register for Self-assessment

If you do not generally send a tax return, do register yourself by 5th October following the tax year. After registration, you will get a letter which tells what to do next.

Filling in your tax return

In order to fill income or gains earned from overseas, use the “foreign section of the tax return”. In order to get foreign tax credit relief, you need to include income that already been taxed abroad.

You can use HMRC website or click on the link below to get guidance on how to report your foreign income or gains in your tax return in Foreign Notes

Foreign income that’s taxed differently

Most of the foreign incomes are taxed in the same way as UK income but there are special rules defined for –

Pension
Rent from Property
Certain types of unemployment income

Pensions

Any individual who is a UK resident or were resident in any of previous 5 tax years need to pay tax on pensions.

You also need to pay tax on foreign pension payments which includes unauthorized payments such as early payments & some lump sum amount.

Rent from Property

You need to pay tax on overseas property in a normal way. In case you are renting more than one property, you can offset losses against other overseas properties.