Tax on Foreign Income in the UK 2025-26: Earnings, Investments and Rental Income
If you are resident in the UK for tax purposes, you are generally taxable on your worldwide income — not just income earned in the UK. This catches many people by surprise: income from a foreign bank account, rent from an overseas property, dividends from US or European shares, and salary earned while on secondment abroad can all create a UK tax liability. This guide explains the rules for 2025-26, including the significant changes to non-domicile status that took effect in April 2025.
Establishing UK tax residency: the Statutory Residence Test
The Statutory Residence Test (SRT) determines whether you are a UK tax resident in any given year. In broad terms:
- Automatically resident: You spend 183 or more days in the UK in a tax year, or have your only home in the UK.
- Automatically non-resident: You spend fewer than 16 days in the UK, or you worked full-time abroad with fewer than 91 days in the UK.
- Tie-breaker tests: Between these thresholds, the number of "ties" to the UK (family, accommodation, work, 90-day tie, country tie) determines residency.
The SRT is an annual test. You can be resident one year and non-resident the next. Split-year treatment applies in the year you arrive in or leave the UK — your income is split between a UK-resident period and a non-resident period.
The arising basis: how UK residents are taxed on foreign income
UK tax residents are taxed on the arising basis — meaning foreign income is taxed in the UK in the year it arises, regardless of whether it is remitted (brought into) the UK. From April 2025, this is the only basis available to most taxpayers following the abolition of the remittance basis (see below).
Double taxation: treaties and unilateral relief
If your foreign income is also taxed in the country of source, you may end up being taxed twice on the same income. The UK has double taxation agreements (DTAs) with over 130 countries that prevent this. Under a DTA:
- The treaty allocates taxing rights between the two countries.
- Where both countries can tax (for example, employment income during a secondment), you receive a credit in the UK for tax paid abroad — known as Double Taxation Relief (DTR).
- The credit is capped at the UK tax due on the same income — you cannot reclaim more than you owe in the UK.
Where no DTA exists, HMRC provides unilateral relief — you can still deduct the foreign tax paid from your UK liability on the same income, subject to the same cap.
Foreign employment income
If you are a UK resident working partly or wholly outside the UK, your entire salary is still assessable to UK income tax. Tax paid in the country where you worked can be credited against your UK bill. The Overseas Workday Relief (OWR) provides some relief for qualifying new arrivals who work outside the UK — this is an integral part of the new Foreign Income and Gains regime introduced in April 2025.
Foreign dividends
Dividends from overseas companies are taxed as UK dividends — they benefit from the £500 dividend allowance (2025-26) and are then taxed at 8.75% (basic), 33.75% (higher), or 39.35% (additional). However, many countries deduct withholding tax at source before paying dividends to UK investors — commonly 10%–30%. This withholding tax can be credited against your UK dividend tax liability under the relevant DTA, up to the UK tax due.
Foreign rental income
If you own property abroad and let it out, the rental income is fully taxable in the UK. You can deduct allowable expenses in the same way as UK rental income (mortgage interest relief at the 20% basic rate cap, repairs, management fees, insurance). Exchange rate fluctuations can affect the GBP value from year to year — you must convert income and expenses at the rate prevailing when they arose. Any capital gain on eventual sale is also subject to UK CGT (for UK residents).
Foreign bank interest and savings
Interest earned on foreign bank accounts is taxable in the UK in the same way as UK interest. It benefits from the Personal Savings Allowance (£1,000 for basic rate taxpayers, £500 for higher rate taxpayers, zero for additional rate taxpayers in 2025-26). Any foreign withholding tax can be credited against UK tax due.
How to report foreign income on Self Assessment
Foreign income is reported on the supplementary pages of the Self Assessment return:
- SA106 (Foreign): For foreign employment income, foreign dividends, foreign savings income, and foreign rental income.
- SA108 (Capital Gains): For gains on disposal of foreign assets.
You must convert all foreign currency amounts to GBP using either the exchange rate at the date of receipt, or HMRC's approved annual average rates published at gov.uk.
Frequently asked questions
Do I need to report a foreign account I only use occasionally?
Yes, if it generates income. HMRC requires disclosure of all taxable foreign income, however small. HMRC participates in the Common Reporting Standard (CRS), through which over 100 countries automatically exchange financial account information. UK residents with undeclared foreign accounts are increasingly being identified through this route.
What is split-year treatment?
If you arrive in or leave the UK partway through a tax year, split-year treatment divides the year into a UK-resident part and a non-resident part. Foreign income arising during the non-resident part is generally not taxable in the UK. You claim split-year treatment on your Self Assessment return (SA109 residence pages). The rules are detailed and depend on which of eight specific cases applies to your circumstances.
I worked in Germany for three months. Do I owe UK tax on that income?
Probably — but the UK-Germany DTA will usually mean no double taxation. If your employer deducted German wage tax, you will receive a credit in your UK Self Assessment for the German tax paid. Your net UK position may be nil or a small top-up if the UK rate is higher than the German rate for your income level. Ensure your employer provides documentation of the foreign tax deducted.