If you earn income from abroad and live in the UK, understanding how foreign income is taxed is crucial. The UK taxes residents on their worldwide income, but there are some exceptions and exemptions.
This article explains how much foreign income is tax free in the UK, the rules around different types of foreign income, and how to avoid paying double tax.
What is Foreign Income?
Foreign income refers to any earnings or profits you receive from sources outside the UK. This can include wages, salaries, dividends, interest, and rental income from properties abroad.
If you are a UK resident, you must report all your foreign income, but that doesn’t mean you will necessarily pay tax on it.
Foreign income could come from various sources. For example, you might work remotely for a foreign company or receive interest from foreign bank accounts.
Whether this income is taxed depends on several factors, including your residency status and whether tax has already been paid in the country where the income originates.
How Much Foreign Income Is Tax Free in the UK?

The Personal Allowance
In the UK, the personal allowance is the amount of income you can earn before you start paying tax. For the 2023/24 tax year, the personal allowance is £12,570.
This applies to both UK income and foreign income. So, if your total income, including your foreign earnings, is less than £12,570, you won’t have to pay tax.
However, it’s important to remember that the personal allowance is reduced or removed for higher earners. If your income is above £100,000, your personal allowance will decrease by £1 for every £2 you earn over that threshold.
The Starting Rate for Savings
In addition to the personal allowance, there is a special tax-free allowance for savings income. This includes income from interest on savings accounts or bonds.
If you receive foreign interest, you may be able to benefit from the starting rate for savings. This allowance is £5,000 for the 2023/24 tax year.
It’s important to note that this starting rate only applies to savings income. If you earn a salary or wages from a foreign job, that income is not covered by this exemption.
Tax-Free Allowance for Non-Domiciled Residents
The Remittance Basis
If you are a non-domiciled UK resident, you may be eligible for the remittance basis. This allows you to only pay UK tax on your foreign income if you bring that income into the UK.
For example, if you have foreign rental income or wages that you leave outside of the UK, you may not need to pay UK tax on that money.
However, using the remittance basis comes with a cost. Long-term residents who have been in the UK for over seven of the last nine years must pay an annual charge to benefit from the remittance basis.
This charge can range from £30,000 to £60,000, depending on how long you have lived in the UK.
Additionally, not all types of foreign income qualify for the remittance basis. Foreign income from employment is one example of income that can be taxed even if it’s not brought into the UK.
Double Taxation Agreements (DTAs)
What are Double Taxation Agreements?
Double Taxation Agreements (DTAs) are treaties the UK has with many countries to avoid taxing the same income twice.
If you earn foreign income, you might be taxed by both the UK and the country where you earned the income. In such cases, the DTA allows you to reduce or eliminate the tax liability in one of the countries.
DTAs work by allocating taxing rights between the two countries involved. They may also provide tax relief for foreign taxes paid, which could reduce your UK tax bill.
For example, if you paid tax on rental income in Spain, the DTA between the UK and Spain might allow you to offset the tax you’ve paid against any UK tax due.
It’s important to check whether the foreign country you are earning income from has a DTA with the UK. If there is no agreement, you may still be able to claim tax relief, but the process will be more complicated.
Tax on Foreign Employment Income
Income from Foreign Jobs
If you work for a foreign employer, your foreign employment income may be subject to UK tax. The key factor is whether you are considered a resident in the UK for tax purposes.
If you are a UK resident, you are taxed on your worldwide income, including income from foreign jobs.
However, there are some exceptions. If you are working abroad temporarily, you may be able to avoid UK tax on your foreign income under specific rules for expatriates.
If you live and work abroad for a long period, you may qualify for an exemption, but this depends on your specific situation and whether you meet the criteria set out by HMRC.
It’s important to note that if you are working abroad for a UK employer, your income will still generally be subject to UK tax, even if you spend most of your time overseas.
Foreign Rental Income
Reporting and Taxing Rental Income from Abroad
If you own property abroad and earn rental income, that income is taxable in the UK. You must report your foreign rental income on your Self-Assessment tax return, just as you would report income from UK property.
You can also claim deductions for expenses related to the property, such as repairs or maintenance costs. However, you must convert foreign currency into pounds when reporting your income and expenses.
If you have already paid foreign tax on the rental income, you may be able to claim tax relief under a DTA. This can help ensure you don’t pay tax on the same income twice.
Foreign Dividends and Interest
Taxing Foreign Investments
Dividends and interest from foreign investments are generally subject to UK tax. If you have investments in foreign stocks or bonds, the income you receive from these investments will be added to your total income and taxed accordingly.
However, if there is a DTA between the UK and the country where the investment is located, you may be able to reduce the amount of tax you pay in the UK.
In some cases, you might be able to offset the foreign tax paid on these earnings against your UK tax liability.
It’s also worth noting that foreign dividends may be subject to a lower rate of tax if they are from certain countries.
You should check whether the country of the investment has a DTA with the UK to understand the exact tax treatment.
The Impact of Residency on Foreign Income Taxation

How Residency Status Affects Taxable Income
Your residency status plays a critical role in determining whether your foreign income will be taxed in the UK. UK residents are taxed on their worldwide income, meaning that any income earned abroad will be subject to UK tax.
However, if you are a non-resident for tax purposes, you are only taxed on your UK income, and foreign income is generally not taxable.
Residency is determined based on several factors, including how much time you spend in the UK and your connections to the country. If you are unsure about your residency status, you can use the Statutory Residence Test (SRT) to determine whether you are a UK resident for tax purposes.
Special Exemptions for Certain Types of Foreign Income
Other Tax-Free Foreign Income Sources
Certain types of foreign income may be exempt from UK tax. For instance, if you receive income from a foreign pension, you may not need to pay UK tax if you are covered by a DTA.
Similarly, certain types of foreign investment income may also qualify for exemptions, depending on the country involved. These exemptions are typically detailed in the DTA between the UK and the foreign country.
It’s important to check whether you qualify for these exemptions, as failing to do so could result in unnecessary tax payments.
Reporting Foreign Income in the UK
How to Report Foreign Income to HMRC
If you are a UK resident with foreign income, you must report this income on your Self-Assessment tax return.
You will need to declare all your income, including wages, savings, investments, and rental income from abroad. If you have paid tax in another country on your foreign income, you can claim any tax credits or reliefs that apply.
You will also need to convert any foreign income or expenses into pounds. Keep accurate records of all your foreign income and taxes paid, as HMRC may ask for evidence.
Penalties for Non-Compliance
Consequences of Failing to Declare Foreign Income
Failure to declare foreign income can result in penalties, fines, and interest charges. HMRC has strict rules for reporting foreign income, and they can investigate any discrepancies. The penalties can be severe, especially if you fail to declare foreign income deliberately.
To avoid penalties, make sure you report all your foreign income accurately and on time. If you are unsure about how to declare your foreign income, consider seeking advice from a tax professional.
Conclusion
In the UK, foreign income is generally taxable, but there are several allowances, exemptions, and agreements that can reduce the amount of tax you need to pay.
Understanding the rules around personal allowances, double taxation treaties, and special exemptions can help ensure you only pay the tax you owe.
Always report your foreign income correctly to avoid penalties and ensure compliance with UK tax laws.