Tax Implications of Having Foreign Assets for UK Residents in the UK: A Practical Expert Guide for 2025/26

Picture this: You’ve worked hard, perhaps inherited, or invested abroad, and now you have foreign assets—be it a rental property in Spain, dividend income from a US company, or savings in an offshore account. If you’re a UK resident for tax purposes, understanding the tax implications is crucial. Get it wrong, and you might face unexpected tax bills, penalties, or missed opportunities to claim reliefs and refunds.

This article is designed with you in mind—the savvy UK taxpayer or business owner looking for clear, step-by-step advice to verify your UK tax position on foreign assets and income, calculate liabilities accurately, avoid mistakes, and optimise your tax affairs in line with the most recent 2025/26 rules.

Understanding Your UK Tax Obligations on Foreign Assets—Income, Gains, and More (with 2025/26 Rates and Allowances)

If you are resident in the UK for tax purposes, you are generally liable to pay UK tax on your worldwide income and gains. This includes:

• Income from overseas property (rental income),
• Dividends, interest, and other foreign income,
• Capital gains when you sell foreign assets (property shares, investments, business interests).

Residency and Domicile Status

In my 18+ years advising London clients, one of the first questions I always ask is about your residency and domicile status. Even if you are not domiciled in the UK (for instance, because of your heritage or permanent home elsewhere), from April 2025 the UK is abolishing the domicile regime, moving to a residence-based system for inheritance tax. This means for most UK residents, foreign assets and income are fully taxable—not just limited to UK assets.

2025/26 Key Income Tax Rates and Allowances

You’ll be happy to know that the personal allowance remains frozen at £12,570 for the coming 2025/26 tax year. Here’s how UK income tax bands are currently set:

Note: Scottish taxpayers face slightly different rates and bands.

Capital Gains Tax (CGT) Rates

For foreign assets, when sold, CGT applies as follows for 2025/26:

The CGT annual exemption is now reduced to £3,000 (down from £12,300 pre-2024/25), meaning more gains fall within taxable scope.

Income from Foreign Property

Rental income from overseas property gets added to your UK income and taxed accordingly. You’ll declare this on your Self Assessment tax return. Expenses such as management fees, repairs, and loan interest can be deducted, but be sure to keep detailed records.

Real-World Example: Sarah’s Foreign Property Income

Take Sarah from Manchester. She rents out a villa in Portugal generating £10,000 rental income annually. After allowable expenses of £2,500, her net income is £7,500. Added to her UK employment income (£40,000), her total taxable income is £47,500. Sarah falls into the Basic rate taxpayer band, so her foreign property income is taxed at 20% less her personal allowance.

Sarah must also be mindful of Portuguese tax paid on this property income, which she can claim as double tax relief on her UK return, avoiding double taxation.

Step-by-Step Verification: How to Check Your Correct Foreign Income Tax Liability

None of us loves tax surprises, but here’s the process I took clients through recently to verify their foreign income tax liability and check for under- or over-payments:

1. Gather Foreign Income Records: Bank statements, foreign property rental agreements, dividend vouchers.
2. Convert Income to GBP: Use appropriate HMRC exchange rates for the tax year.
3. Deduct Allowable Expenses: For rental income or foreign business income.
4. Add to UK Income: Remember personal allowance and tax banding.
5. Check Double Tax Relief: Use your foreign tax paid figure for relief to avoid paying tax twice.
6. Calculate Tax Due Across All Income: Using current tax bands.
7. Compare with Tax Paid: Through PAYE or prior payments on account.
8. Use HMRC’s Personal Tax Account: To review your tax code and income details online (
9. www.gov.uk/check-income-tax-current-year
10. ).

Understanding Common Pitfalls

Be careful here, because I’ve seen clients trip up when:

• Forgetting to report foreign dividends and interest.
• Underestimating allowable expenses for foreign rental income.
• Not claiming foreign tax credit correctly.
• Ignoring the reduced CGT allowance, triggering unexpected capital gains tax on foreign disposals.

Table: Income Tax vs CGT Treatment of Foreign Income and Gains

Looking Ahead: Scottish and Welsh Variations

For those living in Scotland or Wales, income tax rates and bands vary slightly from the above. For instance, Scotland has a five-band system including a starter rate of 19% and a top rate of 48%. When foreign income bumps you into these bands, tax calculation can become trickier, especially if you have multiple income sources.

In this first segment, we’ve established the basics of UK taxation on foreign assets and income for 2025/26 and practical ways to confirm your tax liabilities. The next part will dive deeper into advanced topic areas like self-employed individuals with foreign income, emergency tax codes, and how to handle multiple income streams with foreign elements—as well as bespoke calculation worksheets to help you manage your tax affairs with confidence.

References:

• HMRC, Tax on foreign income
• www.gov.uk/tax-foreign-income
• ​
• Equals Money, Guide for UK citizens owning foreign property​
• UK Autumn Budget 2024, Capital Gains Tax on foreign assets​
• LITRG, UK tax for UK residents on foreign income and gains​

Tax Implications of Having Foreign Assets for UK Residents in the UK: Advanced Reporting, The FIG Regime, and Complex Scenarios in 2025/26

Now, let’s think about your situation if you’re beyond the basics and dealing with complexities like offshore trusts, newly resident individuals, or multiple income streams including foreign assets. This part unpacks the significant changes made for the tax year 2025/26 and practical steps to comply, optimise, and avoid pitfalls.

End of the Remittance Basis and the Introduction of the FIG Regime

The biggest shakeup came in April 2025 with the abolition of the remittance basis taxation for most UK residents. If you’ve had non-domiciled status historically and held foreign income or gains offshore without bringing them to the UK, that shelter has effectively closed.

What This Means for You

• From 6 April 2025, UK residents are taxed on their worldwide foreign income and gains as they arise—regardless of whether they are brought into the UK.
• The only exceptions are “qualifying new residents” who are eligible for the new Foreign Income and Gains (FIG) regime.

I’ve seen seasoned clients with offshore trusts and foreign rentals profoundly impacted by this shift; their tax bills jumped because pre-2025 remittance-based deferrals no longer apply on new income.

The FIG Regime: Relief for New UK Residents with Foreign Income

For individuals who became UK resident after a minimum 10-year absence (“qualifying new residents”), a four-year relief window exists called the FIG regime.

• During this four-year period, the individual won’t pay UK tax on foreign income and gains arising in those years, whether remitted or not.
• However, to use FIG, a claim needs to be made; failure means losing key personal allowances and CGT exemptions.
• Post-four years, worldwide income and gains will be taxable without relief.

This is a lifeline for expatriates re-settling in the UK, and personally, I’ve helped many clients structure their return to maximise this relief while preparing for eventual full taxation.

Reporting Requirements and Practical Steps for UK Residents with Foreign Assets

If you have foreign assets or income, you usually need to complete a Self Assessment tax return including the “Foreign (SA106)” supplementary pages. This reporting covers:

• Foreign dividends, interest, and rental income,
• Gains from disposal of foreign assets,
• Foreign trusts or settlements you benefit from.

Step-By-Step Reporting

1. Collect all foreign income and gains details, including dates, amounts, currencies, and taxes paid abroad.
2. Convert foreign currency amounts to GBP using HMRC’s annual average or specific exchange rates.
3. Complete SA106 Foreign Pages with gross income and deductible foreign tax.
4. Claim foreign tax credit relief where applicable to avoid double taxation.
5. Submit the return by the deadline (31 January following the tax year) to avoid penalties.

Emphasising record-keeping is vital—as one client recently found, incomplete proof of foreign tax paid can cost a lot in lost credits.

Complex Cases: Multiple Income Sources and Tax Codes

Now, the big question on your mind might be: How do I handle foreign income alongside UK job income, self-employment, or business trading? And what about tax codes and emergency tax situations?

Employees with Foreign Income

If you’re employed and receive foreign income, HMRC’s PAYE system typically won’t account for your overseas earnings. This means you might:

• Be underpaid (because PAYE deducts tax only on UK earnings),
• Or overpaid if your tax code doesn’t reflect all income sources.

In my years advising clients, I always recommend combining PAYE and Self Assessment to avoid nasty surprises. You can check your tax code via HMRC personal tax account and compare it with your real income total.

Self-Employed or Business Owners

For self-employed individuals or business owners, foreign income can be especially tricky:

• Foreign business income is combined with UK income to determine tax liability.
• All allowable expenses can be deducted, including costs directly relating to foreign income.
• Overseas taxes can be credited, but detailed invoicing and records are essential.
• Foreign exchange rate fluctuations can impact taxable profits—consider using consistent exchange rates.

Hypothetical Case Study: Tom the Freelancer with Mixed UK and Foreign Income

Tom, a graphic designer based in Bristol, started freelancing for clients abroad. He earns £30,000 UK income and £15,000 from foreign clients.

• Tom must declare both on his Self Assessment.
• He deducts £2,000 costs related to foreign work.
• His total taxable income rises to £43,000, placing him in the basic tax band.
• If foreign tax was paid on £15,000, he can claim relief to avoid double tax.

Tom would be wise to use HMRC’s online personal tax account to verify PAYE codes and submit accurate Self Assessment returns on time.

Emergency and Incorrect Tax Codes: What to Watch

If you suddenly receive an emergency tax code or your tax code is incorrect, it can impact your overall tax, especially when foreign income is not considered.

• Emergency codes may result in over or underpayments.
• Always check your tax code on your payslip or online.
• Use HMRC’s tax calculator to estimate if your tax deduction aligns with your total income sources.

If you discover errors, contacting HMRC or consulting a tax professional is crucial for correction and refund claims.

Table: Comparison of Taxpayer Types and Foreign Income Handling

In part 3, the article will complete with advanced worksheets tailored for business owners to calculate foreign income tax liability, tips on spotting underpayments or overpayments, reflections on high-income child benefit tax charge impacts on foreigners with overseas income, and a summarized checklist of key takeaways for effective tax management in 2025/26.

References:

• Haysmac Offshore Trust Tax Changes 2025​
• Saffery FIG Regime Summary​
• Deloitte Taxscape FIG Regime Explained​
• Dixcart Non-doms Tax Changes 2025​
• HMRC Foreign Income Reporting Guidance​

Advanced UK Tax Planning for Foreign Assets: Foreign Tax Credit Relief and Final Summary of Key Points

So, the big question on your mind might be: how exactly do you avoid being double-taxed on your foreign income, and what practical tax planning can help you optimise your liabilities? Having foreign assets is not just about ticking boxes on a tax return; it’s about understanding reliefs, calculations, and sometimes intricate rules to avoid costly mistakes.

Understanding Foreign Tax Credit Relief (FTCR)

Foreign Tax Credit Relief is your main tool to prevent you paying tax twice—once abroad and again in the UK—on the same income or gains from foreign assets. Here’s how it works in practice:

• You calculate your total UK tax liability including foreign income.
• Then you calculate your UK tax liability without the foreign income.
• The difference between these two calculations is essentially the UK tax chargeable on the foreign income.
• The credit relief you claim is the lower of:
  • The UK tax payable on that foreign income, or
  • The foreign tax already paid on it, or
  • Any relief allowed under a Double Tax Agreement (DTA) between the UK and the foreign country.

This means if foreign tax is higher than UK tax on that income, you only get credit up to your UK liability, but if UK tax is higher, you get credit for the foreign tax paid.

Step-by-Step Original Worksheet for FTCR Calculation

Let’s make this practical. Here’s a simplified worksheet to calculate your Foreign Tax Credit Relief for one source of foreign income:

Use this worksheet to keep safely in your files and update annually.

Case Study: Practical FTCR in Action

Take Zoë, who earns £48,000 from UK self-employment and £4,000 in foreign interest income, taxed 7.5% abroad (£300 tax paid). Without foreign interest, UK tax on £48,000 is £7,086; with the extra income, it rises to £8,032, so the UK tax attributed to foreign income is £946. She claims FTCR of £300 (foreign tax paid), reducing her UK tax bill to £7,732.

This is a typical scenario I’ve guided many clients through, highlighting how even small foreign income requires careful reporting to avoid surprises.

Advanced Planning Tips for Business Owners

• Keep detailed records of foreign income and foreign tax paid.
• Claim all allowable business expenses related to foreign operations or assets.
• Review double tax treaties relevant to your asset locations.
• Consider timing disposals or dividend declarations to optimise tax year effects.
• If dealing with offshore trusts or complex ownership structures, seek expert advice because post-2025 rules are stricter.

Summary of Key Points

1. UK residents are taxed on worldwide income, including foreign assets and earnings.
2. The 2025/26 UK income tax personal allowance is £12,570; basic rate is 20% up to £50,270, with higher rates above.
3. Scottish taxpayers have different tax bands and rates which must be considered separately.
4. From April 2025, remittance basis is abolished for long-term UK residents; all foreign income is reported and taxed on an arising basis.
5. Foreign income includes wages, dividends, rental income, pension income, and capital gains on foreign assets.
6. Employees must check their tax codes carefully; PAYE may not account for foreign income automatically, leading to underpayments.
7. Self-employed and business owners must report foreign income on their Self Assessment and take advantage of allowable expenses.
8. Foreign Tax Credit Relief prevents double taxation and is calculated as the lower of UK tax on foreign income or foreign tax paid.
9. Always aggregate UK and foreign income to apply correct tax bands; foreign income can push you into higher tax brackets.
10. Maintain detailed records and use HMRC’s personal tax account for tax code and payment verification to avoid surprises.

FAQs

Q1: Can UK residents with foreign assets still claim the remittance basis of taxation?

A1: Well, it’s worth noting that from 6 April 2025, the remittance basis no longer applies for most UK residents, meaning you’re generally taxed on worldwide income and gains as they arise, regardless of whether you bring the money to the UK. The exception is for “qualifying new residents” who have been non-resident for at least 10 years and can claim relief for up to four tax years. So, if you’ve held onto foreign assets while being UK resident for several years, you need to prepare for worldwide taxation without remittance relief.

Q2: How can UK taxpayers avoid double taxation on income from foreign assets?

A2: In my experience with clients, the key is to use the Foreign Tax Credit Relief (FTCR). This relief offsets the UK tax due by the amount of foreign tax already paid on that income (up to the UK tax liability on the same income). So, if you paid tax abroad on rental income or dividends, you can credit that amount against your UK tax bill for the same income, reducing the chance of being taxed twice. Always keep records of foreign taxes paid and claim this relief on your Self Assessment.

Q3: What steps should a UK employee take to ensure their PAYE tax code reflects foreign income accurately?

A3: It’s a common mix-up, but here’s the fix: Employees need to notify HMRC about their foreign income, as PAYE codes generally don’t capture foreign earnings automatically. You should check your personal tax account online to see your tax code and income details. If foreign income isn’t reflected, you may face underpayment or an emergency code. Filing a Self Assessment or contacting HMRC for a tax code adjustment is the way to go. Take Sarah from Manchester—she avoided a hefty surprise by proactively updating HMRC.

Q4: What should self-employed individuals with foreign clients know about declaring foreign income?

A4: For the self-employed, declaring foreign income is essential on your Self Assessment tax return. You must convert foreign earnings to GBP using HMRC’s official exchange rates and include them along with UK earnings for tax calculation. Don’t forget to deduct allowable expenses related to generating that foreign income, which can reduce your taxable profits. In Leeds, I advised a freelancer who overlooked this and ended up overpaying tax—proper expense tracking saved them a significant sum.

Q5: Do Scottish tax bands affect the taxation of foreign income for Scottish UK residents?

A5: Yes, they do. Scottish taxpayers are subject to different income tax rates and bands on non-savings and non-dividend income, which includes most employment and self-employment earnings, whether from the UK or abroad. Foreign income can push you into higher tax brackets based on Scottish rates, which differ from the rest of the UK. So, always use Scottish tax bands to calculate your income tax liability if you’re resident in Scotland.

Q6: How does having multiple foreign income sources impact UK tax calculations?

A6: When you have various foreign incomes—like dividends, rental properties, and consultancy fees—they must all be aggregated and converted into GBP. The total foreign income combines with UK income for overall tax liability. This aggregation may push you into higher tax brackets, increasing tax rates on some income. Be diligent in reporting all sources correctly to avoid discrepancies and potential penalties.

Q7: What are the risks of underreporting foreign income for UK residents?

A7: Underreporting foreign income carries heavy penalties, interest on unpaid tax, and even risks of criminal investigations. HMRC has ramped up scrutiny on offshore assets, especially since 2025 reforms. In my years advising, I’ve seen serious cases where clients underestimated the scope of reportable income, leading to costly tax adjustments. It’s best to be transparent and comprehensive when disclosing foreign earnings.

Q8: How do capital gains on foreign assets get taxed for UK residents?

A8: Capital gains from selling foreign assets like property or shares are taxed in the UK on a worldwide basis for residents. You calculate gains using the purchase and sale prices converted to GBP at the appropriate exchange rates. Allowable costs and reliefs (like annual CGT exemptions) apply as with UK assets. Proper record-keeping is vital here; I’ve helped clients avoid paying CGT twice by correctly claiming foreign tax credits and double taxation treaty reliefs.

Q9: What happens if a UK resident has an emergency tax code but owns foreign assets?

A9: Emergency tax codes often arise for PAYE employees with incomplete tax details, potentially leading to incorrect tax deductions. If you have foreign assets and unlogged foreign income, this can complicate matters further. It’s crucial to contact HMRC to explain your full income picture, including foreign earnings, and request a proper code adjustment to avoid overpayment or underpayment.

Q10: Are there specific tax considerations for UK residents receiving foreign pensions?

A10: Yes, foreign pensions are taxable in the UK for residents, but double taxation treaties might reduce or eliminate tax due. You must declare foreign pension income on your tax return and can often claim foreign tax credit relief for tax paid abroad. Depending on the treaty, you might also benefit from exemption or reduced tax rates. I’ve helped retirees from London navigate tricky treaty claims to optimise their pension tax position.

Q11: Can UK taxpayers claim expenses for managing foreign assets against UK tax?

A11: Absolutely, if the expenses are wholly and exclusively for the purpose of earning foreign income, such as management fees for overseas property or banking costs for foreign investments, these can be deducted when calculating taxable profits. Just like domestic expenses, keep clear invoices and records—I’ve seen business owners in Birmingham reduce their foreign rental tax bills significantly by claiming legitimate management expenses.

Q12: How does the abolition of the remittance basis affect offshore trusts linked to UK residents?

A12: From April 2025, offshore trusts benefit UK residents less as all foreign income and gains arising are taxed on an arising basis, regardless of whether they are remitted to the UK. This eliminates the ability to defer or avoid UK tax by holding income offshore. This means trustees and beneficiaries connected to UK residents must report all income promptly. Many clients have had to restructure holdings to adjust to this significant change.

Q13: What should taxpayers do if they suspect they have overpaid tax on foreign income?

A13: The best approach is to use the HMRC personal tax account and Self Assessment tools to review your payments, cross-check income reports, and identify discrepancies. If overpayment is detected, you can claim a refund via a Self Assessment amendment or contact HMRC directly. Take care with timing as there are time limits—usually four years—for claims. I’ve helped many clients recover thousands by spotting unclaimed foreign tax credits or misreported income.

Q14: Will National Insurance contributions be affected by foreign income?

A14: National Insurance is generally based on UK earnings. Foreign income, such as from overseas pensions or investments, does not usually attract NICs. However, if you work abroad for a UK employer or in certain social security agreements, NICs may still be payable. I’ve had self-employed clients working partly overseas who had to carefully review NIC obligations to avoid unexpected charges.

Q15: How do high earners with foreign income deal with the High-Income Child Benefit Charge (HICBC)?

A15: The HICBC reduces or removes child benefit payments for individuals earning over £50,000, including foreign income. This means foreign earnings can push you into this charge, requiring you to repay some or all of the benefit as a tax charge. In practice, this calls for careful income splitting and planning. For example, a couple in Bristol with rental income abroad had to adjust their declarations to mitigate the charge’s impact.

Q16: What are the reporting requirements for foreign income on a UK Self Assessment tax return?

A16: If you have foreign income totaling more than £2,000 or any foreign income brought into the UK, you must declare it on your Self Assessment return, specifically in the Foreign pages. Even nominal amounts should be reported to avoid penalties. Accuracy and completeness are critical; I often advise preparing a checklist of all foreign income sources before filing.

Q17: Can foreign income affect entitlement to UK tax credits or Universal Credit?

A17: Yes, foreign income is usually treated the same way as UK income when assessing eligibility for tax credits and benefits like Universal Credit. This means it can reduce entitlement or increase repayments. If you receive significant foreign income, you should report it promptly to avoid overpayments and subsequent recovery notices.

Q18: How should gig economy workers with foreign income manage their tax affairs?

A18: Gig workers often juggle multiple income sources in the UK and abroad, such as freelance platform earnings plus foreign consultancy fees. It’s critical to consolidate all earnings, keep accurate records, and declare them on Self Assessment. Many overlook foreign income in this sector, resulting in compliance issues. I recommend scheduling quarterly reviews and maintaining currency conversions meticulously.

Q19: What is the impact of owning foreign assets on Inheritance Tax (IHT) for UK residents?

A19: Foreign assets are generally subject to UK IHT if you’re domiciled or deemed domiciled in the UK. This includes foreign property, shares, or trusts. Unlike income tax, IHT rules for foreign assets can be complex due to varying treaties and valuation rules. Proper planning and valuation are essential to avoid unexpected charges on estate transfer.

Q20: Are there any special reliefs for UK residents returning from abroad with foreign assets?

A20: Returning residents who meet the definition of “qualifying new residents” under the FIG regime receive up to 4 years of relief from UK tax on their foreign income and gains, allowing a transitional period to restructure assets or plan tax efficiently. This relief is a lifeline but requires timely claims and understanding of eligibility. I’ve helped returning expats structure returns to maximise benefit from this relief before full worldwide taxation kicks in

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About the Author:

Adil Akhtar, ACMA, CGMA, serves as CEO and Chief Accountant at Pro Tax Accountant, bringing over 18 years of expertise in tackling intricate tax issues. As a respected tax blog writer, Adil has spent more than three years delivering clear, practical advice to UK taxpayers. He also leads Advantax Accountants, combining technical expertise with a passion for simplifying complex financial concepts, establishing himself as a trusted voice in tax education.

Email: adilacma@icloud.com

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Please note that figures, illustrations, charts, and statistical references are provided for explanatory purposes and may not always reflect the most recent updates from HMRC or other regulatory bodies.

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