Tax on income and gains outside the UK

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 the income and 'gains' (such as taxable profits from the sale of property or investments) you earn abroad. There are two options you can choose and it is important to decide which is best for you.

This guidance includes references to ordinary residence status. This is only relevant up to 5 April 2013 because the concept of ordinary residence has largely been abolished for tax purposes with effect from 6 April 2013.

On this page:

Tax Residence Indicator

From 6 April 2013 the rules that determine if someone is resident in the UK for tax purposes have been put on a statutory basis. These rules are known as the Statutory Residence Test (SRT). For the majority of people whether or not they are resident for tax purposes is quite straightforward under the test and their position will not change. For those with complex circumstances the SRT will provide more certainty about their residence status.

To help you understand your tax residence status HM Revenue & Customs (HMRC) have launched an on-line tax residence indicator. This residence indicator will give you an indication of your tax residence status after answering a few straightforward questions such as how many days you spent in the UK, where you have a home and if you have family ties. This is a pilot version. A full version of the tool will be released in 2014.

Check your residence status

Find out more about the Statutory Residence Test and changes to Overseas Workday Relief by following the links below:

The RDR1 is a guide for residents and non-residents on the residence, domicile and remittance basis rules for tax years 2012-13 onwards. It replaces the booklet HMRC6.

RDR1

The HMRC6 booklet should be used as a guide for residents or non-residents for information on rules affecting your tax liability in the UK up to the end of tax year 2012 to 2013 only.

HMRC6

How 'residence' and 'domicile' affect your tax

Understanding 'residence' and 'domicile'

You are probably 'resident in the UK for tax purposes' but 'domiciled abroad' if all of the following apply:

  • 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

Before 6 April 2013, you may be treated as 'not ordinarily resident' if all of the following apply:

  • you have only recently arrived in the UK
  • you did not intend to live here for three years or more when you first arrived in the UK
  • you are not in the UK for three months or more in any one year on average

Find out more about the meaning of residence and domicile by following the links below.

RDR1 - Residence, domicile and the remittance basis

This is a guide for residents and non-residents on the residence, domicile and remittance basis rules for tax years 2012 to 2013 onwards. It replaces the booklet HMRC6.

HMRC6 - Residence, domicile and the remittance basis

Use this guide as a resident or non-resident for information on rules affecting your tax liability in the UK up to the end of tax year 2012 to 2013 only.

How you pay tax

If you are living in the UK and are 'domiciled abroad' in the UK, you can choose how you want to pay tax on your foreign income and gains (a 'gain' is when something which you own is sold for a profit).

You can:

  • either pay tax on the 'arising basis' - which means you pay tax in the UK on all of your UK and foreign income and gains
  • or you can pay tax on the 'remittance basis' – which means that you pay tax in the UK on your UK income and gains. You also pay tax on your foreign income and gains but only if they are brought into the UK

Up to 5 April 2013, you could also choose to be taxed on the remittance basis if you were resident but not ordinarily resident in the UK. Where you did so, the remittance basis will only apply to your foreign income. Your foreign gains will be taxed on the arising basis, whether or not you decide to be taxed on the remittance basis.

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Your tax if you choose the remittance basis

Tax allowances if you choose the remittance basis

If the amount of foreign income and/or gains that you leave abroad is £2,000 or more in any year, and you decide to be taxed on the remittance basis, you will lose your annual UK tax-free Personal Allowances and Capital Gains Tax annual exempt amount. (These are explained later in this guide.)

The annual charge if you choose the remittance basis

If you've been resident in the UK for more than seven out of the previous nine tax years, excluding the current tax year, you may have to pay a £30,000 charge each year. This is called the 'remittance basis charge'. If you have been resident for 12 or more years, excluding the current tax year, the charge rises to £50,000 each year.

How to pay tax on the remittance basis

If the foreign income and/or gains that you leave outside the UK in a tax year are more than £2,000 and you want to pay tax on the remittance basis you must complete a Self Assessment tax return at the end of the tax year. This is an online or paper form that you have to complete and send to HMRC every year. There is a box to tick where you claim the remittance basis.

You also use the tax return to claim relief for any foreign tax you have paid on your foreign income and gains, and to tell HMRC about foreign income and gains that you bring into the UK.

Find out about Self Assessment tax returns

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

If the foreign income and/or 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 will 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.

Find out about Self Assessment tax returns

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Allowances and reliefs if you don't choose the remittance basis

If you do not choose to be taxed on the remittance basis, you will automatically be taxed on the 'arising' basis, which means you:

  • keep your Personal Allowances
  • keep your Capital Gains Tax annual exempt amount
  • pay tax on all your foreign income and gains
  • claim double tax relief if you have already paid taxes overseas
  • are not liable to pay the £30,000, or the higher £50,000, remittance basis charge
  • must complete a Self Assessment tax return

You can read more about the Personal Allowance and Capital Gains Tax annual exempt amount below.

How to tell HMRC about your foreign income and/or gains

You can tell HMRC about foreign income and gains by completing a Self Assessment tax return. You can also use the tax return to claim relief for any foreign tax you have paid on your foreign income and gains. The tax return is an online or paper form that you have to complete and return every year.

Find out about Self Assessment tax returns

Personal Allowances

The Personal Allowance is an amount of income you can normally receive tax-free each tax year. For the tax year 2014 to 2015 the tax-free Personal Allowance is £10,000. This means you only pay Income Tax on taxable earnings above £10,000.

However if you are claiming the remittance basis you may lose your annual UK tax-free Personal Allowance and any other allowances - such as Blind Person's Allowance - to which you are otherwise entitled. (See the earlier section 'Allowances and charges if you choose the remittance basis'.)

Personal Allowance - find out more

Blind Person's Allowance - find out more

Capital Gains Tax annual exempt amount

Capital Gains Tax is a tax on the profit or 'gain' you make when you sell, give away, transfer or exchange ('dispose of') something of value - 'an asset'. The Capital Gains Tax 'annual exempt amount' in 2013 to 2014 is £10,900. This means you only pay Capital Gains Tax on 'gains' (profits from the sale of, for example, property or investments) above £10,900.

However if you are claiming the remittance basis (see 'Tax allowances if you choose the remittance basis' above) you may lose your UK Capital Gains Tax annual exempt amount ('allowance').

Capital Gains Tax - find out more

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Help and advice

Residency, domicile and tax on foreign income and gains are complicated. You can get help and advice on your situation from HMRC.

Contact HMRC

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More useful links

Tax when leaving the UK

The remittance basis - learn more

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