We are aware of the challenges faced by individuals and corporations that incur foreign income. With ever-changing legislation and complex regulations:
- UK residents, in general, are subject to taxation on their worldwide income. This includes income from overseas employment, profits from overseas businesses, overseas rental income, overseas pensions, and gains on the disposal of assets situated outside the UK.
- The method by which foreign income and gains are taxed in the UK depends on an individual’s residency status and, for some, their domicile status. Domicile is a complex UK legal concept that, in broad terms, refers to the country that a person considers their permanent home.
- Since 6 April 2013, the UK has used a statutory residence test (SRT) to determine an individual’s residency status for tax purposes. Depending on the number of ties and days spent in the UK, a person might be a UK resident or non-resident.
- For individuals who are UK resident but not domiciled in the UK, they may claim the remittance basis of taxation. This means that they are taxed on their UK income and gains, and only on foreign income and gains that they bring (“remit”) to the UK. However, claiming the remittance basis may mean losing certain tax-free allowances and, in some cases, incurring a remittance basis charge.
- For corporations, residency is typically based on where the company is incorporated or where its central management and control is located. UK resident companies are generally subject to corporation tax on their worldwide profits, which includes both income and capital gains.
- In relation to foreign income, a UK company may get a tax credit for foreign tax paid on income derived from overseas sources to avoid double taxation. The UK has double taxation agreements with many countries that determine which country has the right to tax different types of income.
- The UK also has controlled foreign company (CFC) rules. These rules can bring profits arising in low-tax overseas subsidiaries of UK companies into the UK tax net. The CFC rules are complex and provide various exemptions, including for certain profits that pass a low profits or a low profit margin test, among others.
Why work with us?
At UK Tax Advice and Accountancy, we believe in personalised service, understanding each client’s unique circumstances, providing tailored solutions, timely service, and peace of mind. Navigate the Foreign Income and Gains landscape with confidence.
