Overseas tax issues

UK taxpayers with income from overseas may not always be aware of the tax rules that apply.  Foreign income is defined as any income from outside England, Scotland, Wales and Northern Ireland. The Channel Islands and the Isle of Man are classed as foreign. Different rules may apply if you’re eligible for Foreign Income and Gains relief.

Foreign income can include wages from working abroad, overseas dividends and savings interest, rental income from foreign property, and pensions held outside the UK.

Whether UK tax is due depends mainly on your UK residence status. If you are not UK resident, you will not usually pay UK tax on your foreign income. However, UK residents will generally need to pay tax on worldwide income unless a specific exemption or relief applies.

Since 6 April 2025, changes to the rules affecting individuals who previously relied on their overseas domicile status mean that some people may need to review how their foreign income and gains are taxed. Eligible individuals may be able to claim Foreign Income and Gains (FIG) relief, depending on their circumstances.

Foreign income that is taxable in the UK is normally reported through a self-assessment tax return, although some types of income have different rules.

If the same income is taxed in both the UK and another country, you may be able to claim relief to prevent double taxation. In some cases, you may need a certificate of residence from HMRC to confirm your entitlement to relief.

There is a special financial support targeted specifically at exporters.  This is in addition to the package of government-backed and guaranteed loans and other measures designed to support businesses coping with the financial effects of Coronavirus (COVID-19).

UK Export Finance (UKEF) is the export credit agency and a ministerial department of the UK government. The UKEF helps UK companies by providing insurance to exporters and guarantees to banks to share the risks of providing export finance. In addition, it can make loans to overseas buyers of goods and services from the UK that can protect UK exporters facing delayed payments or transit restrictions.

At this crucial time, the following help may be available from UKEF:

• If your business is facing disruption due to late payments, UKEF can help ease cash flow constraints by guaranteeing bank loans through its Export Working Capital Scheme
• If you are concerned about getting paid, UKEF offers an export insurance policy that can help you recover the costs of fulfilling an order that is terminated by events outside your control
• UKEF can also support finance for overseas buyers through the Direct Lending Facility scheme, so they can continue to buy your goods and services
• UKEF has over £4 billion of capacity to support UK firms exporting to China, as well as significant capacity across other markets affected by Coronavirus (COVID-19) to help cover these risks.

There are special rules that must be considered when buying and selling assets in foreign currency. This is sometimes known as a barter transaction. As a general rule when a foreign currency transaction takes place at arm’s length, the value of the consideration is the sterling equivalent of the amount paid for the asset at the date of acquisition and / or disposal.

HMRC provides the following explanatory example where US shares are bought for US dollars in a bargain at arm’s length for full consideration:

• the acquisition cost of the shares is the sterling equivalent of the dollars given at the exchange rate in force at the date of acquisition of the shares;
• the consideration for disposal of the dollars is the sterling value of the shares received in exchange.

HMRC supported by case law, will not accept that the gain or loss on an asset acquired and disposed of for foreign currency should itself be computed in foreign currency, and then converted into sterling at the rate ruling at the time of the disposal of the asset. These rules can create unusual scenarios where a profit or loss in a foreign currency transaction due to currency movements, can create a significantly different outcome when the values are converted to sterling.