Foreign & Investment Income
If you receive savings and investment income from abroad, you'll usually need to declare this on a Self Assessment Tax Return. You may have to pay UK Income Tax, but if you've paid foreign tax on the income you may be able to offset (deduct) this.
What Counts as Overseas Income?
Income counts as 'overseas income' if it comes from outside England, Scotland, Wales and Northern Ireland. So income from the Channel Islands and the Isle of Man counts as overseas income too.
Overseas savings and investment income includes:
Ø Interest from overseas bank or building society accounts.
Ø Dividends and interest from overseas companies.
Ø Rent from overseas properties.
If you've already paid tax in the country of origin
If you find that you're being asked to pay tax both in the country of origin and in the UK, you may be able to claim relief - 'foreign tax credit relief' - from double taxation by completing the foreign pages section of the tax return. The UK has signed many double taxation agreements with other countries. These are arrangements that aim to prevent double taxation.
How much foreign tax credit relief will you get?
You'll get relief on the lower of:
Ø foreign tax payable under the terms of the agreement
Ø the amount of UK tax due
So if the foreign tax you're due to pay is more than that payable as UK tax, you'll still only get relief on the amount of UK tax payable.
Even if there is no double taxation agreement between the UK and the other country, relief may still be given for the foreign tax payable (called 'unilateral relief').
Foreign Tax on Dividends and Interest
Double taxation agreements usually set out a rate of tax (called 'withholding tax') that a country can charge on a UK resident receiving certain types of income from that country - for example, dividends from companies or interest on savings.
Any claim that you make for relief against UK tax must be restricted to this amount. If you've paid foreign withholding tax at a higher rate than is listed for that type of income, you'll need to approach the overseas tax authority for a refund of the tax paid above the withholding tax rate.
Rent from Overseas Property
If UK tax is due on rental income from an overseas property, you can deduct certain expenses and allowances in the same way as you can from income from UK property.
You can claim relief for tax paid in the other country in the foreign pages section of the tax return.
Effect of Residence, Ordinary Residence and Domicile on Your Tax Liability
It's possible that you may not have to pay tax on your overseas income. This will depend on whether you are classed as a 'resident' in the UK for tax purposes in a tax year. The amount of income on which you pay tax may also be affected by your 'ordinary residence' and 'domicile' postion.