From 6 April 2025, the UK introduced major reforms to how foreign income is taxed, particularly affecting new residents and non-domiciled individuals.
With the previous remittance basis replaced by a residence-based model, understanding how much foreign income is tax free in the UK has become increasingly important for individuals with international earnings.
In this guide, we break down what counts as foreign income, how UK residency affects your tax obligations, and how the new Foreign Income and Gains (FIG) regime applies.
Whether you’re a UK resident with overseas investments or a newcomer relocating for work, this article outlines the rules and opportunities to reduce your tax liability legally.
What Is Considered Foreign Income Under UK Tax Law?
Foreign income, as defined by HMRC, is any income originating from outside the UK’s territorial boundaries. This includes income from:
- Employment or self-employment abroad
- Foreign bank interest or dividends
- Rental income from overseas property
- Pensions received from outside the UK
The UK tax authorities treat the Channel Islands and the Isle of Man as foreign jurisdictions. Therefore, any earnings or returns from these locations also fall under the scope of foreign income.
Foreign income becomes relevant when assessing a UK resident’s worldwide earnings. Even if income is earned and retained overseas, UK tax obligations may still apply, depending on residency status and applicable reliefs.
Who Needs to Pay Tax on Foreign Income in the UK?
The obligation to pay tax on foreign income primarily hinges on UK residency status, determined through the Statutory Residence Test (SRT).
How Is UK Residency Status Determined?
The SRT considers the number of days spent in the UK, ties to the UK (e.g. family, accommodation, work), and your previous tax residency history. If you spend 183 days or more in the UK during a tax year, you’re automatically considered a UK resident.
You may also qualify as a resident through the sufficient ties test, which assesses connections like employment or having close family in the UK.
What Is the Impact of the Split-Year Treatment?
When moving in or out of the UK during a tax year, your residency may be split between non-resident and resident periods. This split-year treatment ensures you only pay UK tax on foreign income earned during the period you were a UK resident.
However, not everyone qualifies for this treatment. To claim it, individuals must meet specific conditions outlined by HMRC, such as full-time work abroad or establishing a permanent home outside the UK.
What Were the Foreign Income Tax Rules Before April 2025?
Prior to the 2025 changes, UK tax residents who were not domiciled in the UK could choose the remittance basis of taxation. Under this system, foreign income and gains were only taxed if they were brought (‘remitted’) into the UK.
Non-domiciled individuals also benefited from a tax-free allowance of up to £2,000 for foreign income, provided it wasn’t transferred to the UK. If the income exceeded this threshold or was remitted, it had to be reported via a Self Assessment tax return.
There were charges for long-term UK residents using the remittance basis:
| Years Resident in the UK | Annual Charge |
| 7 of the last 9 years | £30,000 |
| 12 of the last 14 years | £60,000 |
The remittance basis created complexities, and over time, became less favourable, particularly for individuals planning to bring substantial foreign income into the UK.
What Are the New Foreign Income and Gains (FIG) Rules from April 2025?
From 6 April 2025, the UK abolished the remittance basis and introduced the Foreign Income and Gains (FIG) regime, shifting to a residence-based taxation system.
Who Qualifies for the 4-Year FIG Regime?
The FIG regime offers a 100% exemption from UK tax on foreign income and gains for individuals who:
- Become UK tax resident on or after 6 April 2025
- Have not been UK tax resident in any of the previous 10 tax years
- Claim the exemption through their Self Assessment return
Notably, those who became UK residents before 6 April 2025 but were non-residents for 10 years prior may still qualify for the remainder of their first 4 years under the new FIG rules.
Can Partially Used FIG Years Be Carried Forward?
No. The four-year FIG period is fixed and cannot be extended or paused. If you leave the UK during this time or do not fully utilise the exemption in a given year, the unused time does not carry over.
How Does the 4-Year Foreign Income and Gains Regime Work?
The FIG regime is straightforward compared to the previous system. Qualifying individuals:
- Do not pay UK tax on foreign income or gains for the first 4 tax years
- Can bring foreign funds into the UK without any tax implications
- Are not required to pay any annual charge to use the exemption
However, a formal claim must be submitted via the UK Self Assessment process, detailing the foreign income and confirming the use of the FIG exemption.
Example Table: Comparison of Remittance vs FIG Regime
| Feature | Remittance Basis (Pre-2025) | FIG Regime (Post-2025) |
| Tax-free if income remains abroad | Yes | Yes (for 4 years) |
| Tax on income brought into UK | Yes | No (for 4 years) |
| Qualification based on domicile | Yes | No |
| Qualification based on residence | No | Yes |
| Annual charge applicable | Yes | No |
What Happens After the 4-Year FIG Regime Ends?
Once the four-year exemption expires, individuals become fully taxable on their worldwide income and gains, in line with standard UK tax rules.
At this point:
- Foreign income must be reported annually via Self Assessment
- Income is taxed on an arising basis, regardless of whether it’s remitted to the UK
- The individual may need to consider double taxation agreements if income has already been taxed overseas
It is critical to plan for this transition, particularly if you expect significant gains beyond the initial four years.
What Relief Is Available for Double Taxation on Foreign Income?
If your foreign income has already been taxed in another country, the UK offers relief to prevent double taxation through either:
- Foreign Tax Credit Relief
- Exemption under Double Taxation Agreements (DTA)
To claim relief, individuals must provide supporting documentation, such as a certificate of residence and proof of foreign tax paid.
| Type of Relief | How It Works |
| Foreign Tax Credit | UK tax liability reduced by foreign tax already paid |
| Tax Exemption via DTA | Income is exempt from UK tax if covered under DTA terms |
Are Foreign Students and Workers Treated Differently for Tax Purposes?
Yes, special rules apply for foreign students and some seconded workers in the UK. Foreign students are generally exempt from UK tax on foreign income or gains used solely for course fees or living costs, provided their home country has a DTA with the UK.
Similarly, workers seconded to the UK may qualify for Overseas Workday Relief (OWR), allowing them to be exempt from foreign earnings for days worked outside the UK. Eligibility must be verified, and claims are made through the Self Assessment process.
How Should UK Residents Report Foreign Income to HMRC?
UK residents must report foreign income through the foreign section of the Self Assessment tax return. Registration is required by 5 October following the end of the tax year in which income was earned.
Key points to consider:
- Include all taxable foreign income, even if taxed abroad
- Claim relief for double taxation where applicable
- Use HMRC’s Foreign Notes to complete the return accurately
Failure to report qualifying income or incorrectly claiming exemptions can result in penalties or interest charges.
Conclusion
The UK’s shift to a residence-based taxation model represents a significant change, particularly for non-domiciled individuals. The FIG regime offers a valuable opportunity for new residents to legally avoid UK tax on foreign income and gains for four years without the complexity or charges of the old remittance basis.
However, once the four-year window closes, full global tax liability resumes, and comprehensive reporting becomes essential. With double taxation relief, split-year treatment, and exemptions for students and overseas workers, there are numerous tools available to navigate this complex area.
To ensure compliance and optimise tax outcomes, it is advisable to consult a qualified tax advisor or accountant familiar with UK international tax rules.
Frequently Asked Questions
What happens if you don’t declare foreign income in the UK?
Failure to declare foreign income can lead to penalties, interest charges, and in severe cases, legal action. HMRC encourages voluntary disclosure but has authority to investigate and impose fines.
Can you avoid UK tax by keeping foreign income overseas?
No. From April 2025, UK residents must pay tax on worldwide income, even if it remains offshore. Only individuals under the 4-Year FIG regime are exempt temporarily.
How does inheritance tax affect foreign assets?
As of 2025, UK Inheritance Tax is residence-based. If you’ve been resident for 10 of the past 20 years, your worldwide estate may be liable to UK IHT, even after leaving the UK for up to 10 years.
Do I need to pay UK tax if I earn money from an overseas investment?
Yes. Unless you’re exempt under the FIG regime or a DTA, foreign investment income (like dividends or interest) is taxable in the UK.
Is pension income from abroad taxed in the UK?
If you’re UK resident or were resident in any of the previous five years, your foreign pension income is taxable. Tax rules vary by country and may be affected by DTA agreements.
What’s the best way to transfer foreign income to the UK?
There are no restrictions during the FIG regime period. Post-FIG, transferring income may trigger tax liabilities. It’s best to seek advice to plan remittance strategies effectively.
How does the UK treat income earned from a second home abroad?
Rental income from foreign properties is taxable, and foreign capital gains may also be taxed. You can offset foreign losses against gains, and DTAs may reduce double taxation.
