Do I need to declare foreign income to HMRC?

Whether you need to declare and pay tax on foreign income is a highly complex area. Whether you need to pay tax on income earned abroad will depend on whether you are classed as a resident in the UK for tax purposes.

In this blog, we’ll cover areas such as what qualifies as foreign income, how new rules on Foreign Income and Gains (FIG) from April 2025 have impacted the tax landscape, the reporting requirements, and the risks associated with not declaring your foreign income.

What counts as foreign income and gains?

Foreign income is defined by HMRC as money you earn outside England, Scotland, Wales, and Northern Ireland. In terms of tax, any income you generate in the Channel Islands and the Isle of Man is also classed as foreign income.

UK income tax may be payable on foreign income earned through sources such as:

• Wages earned abroad
• Dividends and savings interest from foreign investment income
• Rental income from property owned overseas
• Income from overseas pensions.

Income earned abroad by UK residents and brought into the UK of less than £2,000 won’t be taxed in the UK.

Determining your UK tax residency status

HMRC states that you could be considered a UK tax resident if any of the following apply:

• You are in the UK for 183 days or more within a single tax year.
• Your only home is in the UK for at least 91 consecutive days, and you spend at least 30 days in that property during the tax year.
• You are employed full-time in the UK for 365 days, with at least one day of that period falling within the tax year under review.

Conversely, you are generally regarded as non-resident if you:

• Spend 16 days or fewer in the UK (or up to 46 days if you haven’t been a UK resident in the previous three tax years).
• Work full-time abroad and spend fewer than 91 days in the UK, with no more than 30 days of that time working in the UK.

Split-Year Treatment

If you frequently move in and out of the UK, HMRC may treat your tax year as two separate periods. This is known as split-year treatment. Under this approach, you are only liable to pay UK tax on foreign income for the period during which you are actually residing in the UK.

For UK residents, this generally means paying tax on both income and capital gains earned in the UK as well as abroad.

You may not have to pay UK tax on foreign income or capital gains if:

• Your total foreign income is less than £2,000 in the relevant tax year, and
• You do not bring that income into the UK.

What is the Foreign Income and Gains (FIG) regime?

From 6 April 2025, the FIG regime provided new UK residents with a full exemption from UK tax on foreign income and gains for their first four years of tax residence, provided they had not been UK tax residents at any point in the ten years preceding their move to the UK.

For individuals who were already UK residents as of 6 April 2025, the FIG regime applies to the remaining period of their initial four-year residence, provided they have ten consecutive years of non-UK residence before arrival and were still within their first four years of UK tax residency in 2025/26. Transitional provisions also allow exemptions for previously earned foreign income, gains, and historical accrued gains.

It is important to note that if someone has been a UK resident for only part of the four years, they cannot carry forward unused years to extend the exemption in future tax years.

Eligible individuals who claim the FIG regime do not pay UK tax on foreign income or gains earned during their first four tax years of UK residence and could transfer these funds to the UK without additional tax charges.

This offers a significant advantage over the previous remittance basis, which generally exempted foreign income and gains but taxed them if they were brought into the UK. Unlike the remittance basis, there is no fee for using the FIG regime.

As with previous schemes, individuals have to register with HMRC and submit a UK tax return to claim the FIG regime. The tax return has to include details of the claim and the amount of foreign income and gains for which exemption is requested. Any foreign income or gains not declared on the return will be taxed in full on an arising basis.

Before 6 April 2025, different rules may have applied if your permanent home (‘domicile’) was abroad.

Declaring foreign Income on your Self Assessment tax return

UK residents must report foreign income and capital gains on their Self Assessment tax return. Any foreign income over £2,000 must be reported.

You do not need to fill in a tax return if:

• Your only foreign income is dividends
• Your total dividends - including UK dividends - are less than the £500 dividend allowance
• You have no other income to report

Find out if you may be eligible for Foreign Income and Gains relief here.

Maintaining records of foreign income, gains, and taxes paid overseas is crucial for accurate reporting and declaration, as well as to avoid penalties in the future.

There is a specific ‘foreign’ section of the tax return to record your overseas income or gains.

Include income that’s already been taxed abroad to ensure you get Foreign Tax Credit Relief, if you’re eligible.

HMRC gives clear guidance on reporting your foreign income or gains in your tax return in ‘Foreign notes’ here.

Foreign income that’s taxed differently

Most foreign income is taxed in the UK in the same way. However, some foreign income can be taxed differently. Understanding the rules correctly could create opportunities for exemptions and allowances to be used. There are special rules for the following types of income:

• Pensions
• Rental income from property
• Some types of employment income

Find out more here.

Penalties for not declaring foreign income

Failing to declare foreign income can result in severe penalties.

If you do not report foreign income to HMRC, then you may have to pay both:

• The undeclared tax
• A penalty worth up to double the tax you owe

Bear in mind that you can also be prosecuted if you give false information about the tax you owe!

You may be eligible to notify HMRC about undeclared foreign income through an Offshore Disclosure Facility if:

• You have not told them about your foreign income
• You’re not paying the right amount of tax
• You’ve previously made an incorrect claim
• You’re behind with your tax in the UK

Key Takeaways

• Tax residency is crucial when determining the tax you may owe on income earned abroad.
• Foreign income should be declared to HMRC. This includes income from sources such as wages, dividends, interest, rental income and pensions. If you bring foreign income into the UK that exceeds £2,000 you must declare this income on a Self Assessment tax return.
• From 6 April 2025, the new tax regime for Foreign Income and Gains provided new UK residents with a full exemption from UK tax on foreign income and gains for their first four years of tax residence, provided they had not been UK tax residents at any point in the ten years preceding their move to the UK.
• Always seek professional tax advice to ensure your

Get professional advice from dns accountants

If you are uncertain about your tax obligations around income earned abroad, then seek our professional advice.

Our specialist tax team gives you access to a wealth of tax knowledge. They can advise you on all aspects of tax residency, offshore income and gains, and declaring income earned abroad. We’ll ensure you pay exactly the right amount of tax, no more, no less. This ensures you remain fully compliant with the latest HMRC rules, without paying more than necessary.

Staying up to date with your tax obligations can save you from stress and financial penalties. Take our advice now to ensure your tax affairs are in order and you can enjoy the peace of mind that comes with compliance.

Contact dns on 03300 886 686 or email us at [email protected].

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About the author

Sumit Agarwal
Sumit Agarwal (ACMA ACA India), the Managing partner of dns accountants is a highly respected accountant with expertise in helping owner-managed businesses.