If you live in the UK, generally your worldwide income and gains are subject to tax in the UK. This applies regardless of whether you remit the overseas income or gains to the UK or not. Special rules may apply to you if you have non-UK domiciled status.
Foreign income is defined as any income from outside England, Scotland, Wales and Northern Ireland. The Channel Islands and the Isle of Man are classed as foreign.
Spotlight on foreign rental income and capital gains – common areas of confusion
‘I have already paid tax in Portugal’: It is a common misconception that if a source of income has been taxed overseas, there is no requirement to report it in the UK. The UK has a wide network of double taxation agreements with other countries. These agreements determine which country has taxation rights to a particular source of income. Sometimes both countries have the right to tax the same source of income, in which case the agreements provide a mechanism for relieving double taxation. For example, rental income from a Portuguese property owned by a UK resident will be taxed in Portugal, but it will also be taxable in the UK, however, a deduction for Portuguese tax paid will be available.
‘I did not make any profit on my rental property in the US’: It should be noted that for UK tax purposes profit should be calculated in accordance to the UK tax rules, which can differ from other countries. For example, some countries allow deductions for depreciation of the property or full deductions for mortgage repayments, whilst in the UK deductions for depreciation are not allowed and only the interest element of the mortgage payments can be deducted (subject to restrictions, depending on the individual circumstances). Discrepancies in the rules can often produce an unexpected result.
‘I did not make any profit when I sold my apartment in Switzerland’: Capital gains for UK tax purposes should be calculated by converting the disposal proceeds and costs of acquisition at the exchange rates applicable at the time of disposal and acquisition. For example, you bought an apartment in Bern for CHF 600,000 on 1 May 2015 when the exchange rate was £0.708 and sold it for CHF 600,000 on 1 May 2020 when the exchange rate was £0.832. Although it would appear that you did not make a profit on the sale, the difference in the exchange rate would result in a taxable gain of some £74,400 for UK tax purposes in this example.
If you are concerned that any of these issues affect you, we would be happy to discuss your options. Please contact us to request a free initial consultation with one of our advisers. To learn about our services for non-UK domiciles, please click here.
