Foreign Income UK Tax 2025/26: How HMRC Taxes Money From Abroad

Quick answer

If you're UK tax-resident, you typically pay UK tax on your worldwide income — foreign salary, dividends, interest, rental, pensions, crypto, capital gains. The Statutory Residence Test determines residency status.

Key categories of foreign income (all declared on Self Assessment SA106):

You can usually claim double tax relief for tax already paid to another country, up to the UK tax due on the same income.

UK tax residency — the Statutory Residence Test

The SRT is a series of tests applied in order:

Step 1: Automatic overseas tests

You're non-resident if any apply:

• Spent under 16 days in the UK during the tax year (if UK-resident in any of the previous 3 tax years).
• Spent under 46 days in the UK (if non-resident in all previous 3 tax years).
• Worked full-time abroad with less than 91 UK days and less than 31 UK working days.

Step 2: Automatic UK tests

You're UK-resident if any apply:

• Spent 183 days or more in the UK during the tax year.
• Your only or main home for at least 91 days, including 30 days in the tax year, is in the UK.
• Worked full-time in the UK (75%+ of working days in UK, 1+ year period).

Step 3: Sufficient ties test

If neither automatic test resolves, apply the "ties" test:

The 5 ties:

1. UK-resident family member (spouse, partner, minor child).
2. UK accommodation available for 91+ days (and you spent 1+ night there).
3. 40+ days of UK work in the tax year.
4. More UK days than days in any other single country.
5. Was UK-resident in 1+ of the previous 3 tax years.

The FIG regime — replacing non-dom

The "non-dom" remittance basis ended on 6 April 2025. Replaced by the Foreign Income and Gains (FIG) regime:

• New UK arrivals (who weren't UK-resident in the previous 10 tax years) get 4 years of exemption for foreign income and gains.
• After 4 years: full UK tax on worldwide income/gains.
• One-off "Temporary Repatriation Facility" (TRF) at 12% for pre-arrival income brought to UK during a transition window.

The FIG regime affects:

• New arrivals from abroad (e.g. international workers, returning expats).
• Long-term UK residents previously claiming non-dom status — no longer available.

The change generated significant departures of high-net-worth individuals in 2024-25.

Worked example — foreign dividends

Tom, UK-resident higher-rate taxpayer, receives £5,000 of US dividends in 2025/26. US withholds 15% via his W-8BEN form.

Foreign tax paid: £5,000 × 15% = $750 → roughly £600 GBP equivalent (HMRC monthly exchange rate).

UK tax position:

• Gross dividends: £5,000.
• Dividend allowance: £500.
• Taxable dividends: £4,500.
• UK higher-rate dividend tax (33.75%): £1,519.
• Less foreign tax credit: £600 (capped at UK tax due — here US tax is below UK rate, so full credit applies).
• Net UK tax due: £919.

Total tax burden: £600 (US) + £919 (UK) = £1,519 — exactly the UK dividend tax rate of 33.75%.

The double tax relief means you pay the higher of UK or foreign rate, not both stacked.

Worked example — foreign rental

Sarah owns a holiday home in Spain that she rents on AirBnB:

• Gross rent received (2025/26): €18,000 = £15,500 (at HMRC average rate).
• Spanish income tax already deducted at source: £3,800 (estimated).
• Allowable expenses (cleaning, agency, utilities, insurance, repairs): £6,200.
• UK taxable profit: £15,500 - £6,200 = £9,300.

UK tax:

• At Sarah's marginal rate (40%): £3,720.
• Less Spanish tax already paid (capped at UK): £3,720 (full credit since Spanish tax exceeds).
• Additional UK tax due: £0.

Sarah declares this on Self Assessment SA106 (foreign income) by 31 January 2027. No additional UK tax to pay because Spain has already taxed the rental income at a higher rate.

US 401(k) / IRA — special rules

For UK residents who once worked in the US and have a 401(k) or IRA:

• In the accumulation phase: generally not taxed in UK (treaty modification).
• On distribution: treaty allows the US to tax first (typically 10% early withdrawal penalty + tax), then UK provides foreign tax credit.
• State Pension equivalents (US Social Security): the UK-US double tax treaty determines which country taxes — typically the country of residence.

The interaction is complex — US tax law treats UK-resident IRA holders as US-source income; UK treats it as foreign income. Consult a UK-US dual-qualified tax adviser.

Foreign workdays relief — for employees

If you're UK-resident but employed by an overseas company, performing some duties abroad, you may qualify for Foreign Workdays Relief:

• Salary apportioned to days worked outside UK.
• Foreign-workday portion not taxed if kept in offshore account (and not remitted to UK).
• Strict record-keeping required.
• Important for international consultants, oil/gas workers, etc.

This regime tightened with the FIG reforms — check current eligibility carefully.

Reporting on Self Assessment

Foreign income is declared on SA106 (Foreign supplementary page):

• Section 1: Interest from overseas savings.
• Section 2: Foreign dividends.
• Section 3: Income from foreign property.
• Section 4: Foreign pensions.
• Section 5: Other foreign income.
• Section 6: Capital gains on foreign assets.

You also need to:

• Convert all amounts to GBP using HMRC monthly exchange rates.
• Note any foreign tax already paid (for double tax relief).
• Identify the source country for treaty purposes.

Common errors

1. Not converting at HMRC rates — using your bank's exchange rate creates discrepancies.
2. Missing foreign tax credit — paying double on US dividends because you didn't claim it.
3. Forgetting to file — many UK residents with side foreign income (gig work, foreign dividends, occasional rentals) don't realise Self Assessment is required.
4. Assuming non-dom protection still exists — gone since April 2025.
5. Treaty misinterpretation — pensions and trusts particularly complex.

What if I'm a UK citizen working abroad?

If you're non-UK-resident for the tax year:

• UK tax only on UK-sourced income (UK rental, UK dividends from PAYE-linked employment, etc.).
• Foreign salary not UK-taxable.
• Foreign-country tax usually applies.
• Watch the 183-day rule carefully — even one extra day can flip residency.

Returning UK residents: the split-year treatment allows the year of return/departure to be split into resident and non-resident portions.

Foreign crypto exchanges

Crypto held on Binance (international), Coinbase US, Kraken, etc. is fully UK-taxable for UK residents. Each disposal (sell, swap, gift) is a CGT event regardless of the exchange's location.

Since January 2025, even non-UK exchanges must report user activity to HMRC under the OECD CARF (see our crypto post).

Try the numbers

Sources

• HMRC: Tax on foreign income
• HMRC: Statutory Residence Test
• HMRC: Self Assessment: foreign (SA106)
• HMRC: Foreign Income and Gains regime (FIG)
• gov.uk: Double taxation agreements