It is commonly believed that overseas income – especially if it is subject to taxes in the other country – does not need to be reported in the UK. Unfortunately, this is unlikely to be the case and we are often engaged by our clients to help disclose historic overseas income (sometimes as far back as 20 years) where it has not been previously reported.
If you are UK tax resident (and not a non-domiciled ‘remittance-basis’ taxpayer) then you will need to consider the assessment of UK tax on your worldwide income, regardless of where this arises, how it is paid, where it is kept or whether you have paid tax on it elsewhere.
Of course, no-one expects to pay tax in two countries on the same source of income, and the UK has an extensive system of double taxation agreements (also known as treaties) with most countries around the world to ultimately prevent this from happening. Each treaty will have its own provisions which dictate which of the two countries have the primary right to tax depending on where the taxpayer is resident, and the outcome may differ for various sources (for example, dividends may be treated differently to pension income).
In a further layer of complexity, depending upon the specific treaty and the type of overseas income, one country may have no right to tax the income at all, or both countries may be able to tax the income, but with the availability of tax relief (‘foreign tax credits’) in one of the countries to alleviate any double charge. In any case, it is likely that a claim will need to be made to HMRC – whether on your Self-Assessment tax return, or via a specific claims form – for this favourable treatment.
Alternatively, where the treaty dictates that the UK has the primary right to charge tax on the income, it may be necessary for you to make the claim for exemption or relief in the overseas country, with full tax being payable in the UK.
In any case, the resounding message is that just because it’s not in the UK, it doesn’t mean that it can be ignored!
We would be happy to review your overseas income sources (whether current or historic) and determine the correct UK tax treatment for you – if you would like this assistance, please do get in touch.