If you come to the UK, become a tax resident here, and have foreign income or gains (that is, income and gains from outside the UK) during your stay, you must follow more complicated tax rules. This is due to the UK tax system’s attempt to tax UK residents on their worldwide income and gains.
Suppose you are a resident but non-domiciled person. In that case, the amount of UK tax you must pay on foreign income and gains may vary depending on whether you bring money or assets into the UK.
What is a tax residency status?
When determining whether you must pay UK tax on foreign income, your residency status is the most crucial factor. In case you are a UK tax resident. You must pay tax on all income and gains earned in the UK and abroad. All UK income and gains will be subject to UK taxation. For those not considered UK residents, but any foreign earnings will be exempt.
Your residency status is not set in stone. It is easily influenced by how much time you spend in a country. For tax purposes, your residency status is evaluated for each tax year.
What exactly is a domicile status?
Your domicile status is a secondary consideration that can influence how much UK tax you must pay on foreign income and gains. It is a legal concept that describes the country where you have a permanent home or “roots” throughout your life. It differs from other statuses such as nationality, citizenship, or residence.
If you are a UK resident and have a UK domicile. You must pay UK tax on all income and gains earned in the UK on an ‘arising basis.’ This means you pay tax on your income or gains as they arise during the tax year. If you are a UK resident but do not have a UK domicile. You can choose to tax your foreign income and gains on an arising or remittance basis. The remittance basis means that you will only be taxed in the UK if you bring foreign revenue into the country.
How do I determine my domicile status?
Your domicile of origin is determined at birth and will be the same as that of your father. This means that your domicile is determined by where your father’s permanent home was at the time of your birth rather than where you were born. If your parents were not married when you were born, you would inherit your mother’s domicile.
Your dependency domicile applies until you reach the age of 16. Because of this domicile status, your residence follows the person on whom you are legally dependent. If this person’s address changes, so will yours.
Your domicile of choice is where you can change your domicile of origin once you reach the age of 16. To obtain a new domicile, you must provide sufficient evidence that you have permanently relocated to another country and intend to remain there for the rest of your life. In general, you will need to demonstrate that you want to sever all ties with the country of your domicile of origin.
In addition to these domicile statuses, you can be considered a UK domicile. This is automatic if you are domiciled outside the UK but were born in the UK and have a UK domicile of origin. If you have been a resident for tax purposes in the UK for at least 15 years in the previous 20 tax years. This means that your foreign income and gains may be subject to UK taxation.
How to determine your residency status for foreign income in the UK.
Whether you are a UK resident during the tax year (6 April to 5 April the following year) is determined by the number of days you spend in the UK.
You are automatically a resident if either of the following conditions is met:
- If you have spent 183 or more days in the UK during the tax year
- If your only home was in the UK – that you must have owned, rented, or lived in it for at least 91 days in total – and you spent at least 30 days there during the tax year.
You will be considered a non-resident in the following cases:
- If you have spent less than 16 days in the UK, you are automatically non-resident (or 46 days if you have not been classed as a UK resident for the 3 previous tax years)
- You work full-time abroad (at least 35 hours per week) and have spent no more than 91 days in the UK, no more than 30 of which were spent working.
What are the definitions of foreign income and gains?
You can earn money in a variety of ways outside of the UK. However, they will still be subject to UK Taxation. Here are a few such examples:
- Earnings from foreign employment
- Profits from operating a business in another country
- Rental income from a property in another country
- Gains from selling or giving away assets such as real estate or stocks in foreign countries
- Interest on foreign bank accounts
- Pension income from abroad
However, some foreign gains are not taxable in the UK, as follows:
- Any winnings from gambling in another country
- If you have won from a lottery in another country
- Any gifts are given to you by someone from another country.
Read more about tax on foreign income over here.
How to pay tax on foreign income in the UK
You must report any foreign income and gains to HMRC if you are a UK tax resident and a UK domicile or a UK tax resident but a non-UK domicile who brings in foreign income to the UK. This is accomplished by filing a self-assessment tax return. In general, you have until 31 January of the following tax year. To complete both your tax return filing and the payment of any tax owed.
The only exception to this rule is if your only source of income during a tax year is dividends. Suppose you receive foreign income in the form of dividends and the total amount is less than £2,000 (including any UK dividends you may receive). In such a scenario, you don’t need to report the income.
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