Tax on Foreign Income Calculator

How Foreign Income is Taxed in the UK

As a UK resident, you are generally required to pay tax on your worldwide income, including earnings from abroad. This encompasses wages from foreign employment, rental income from overseas properties, foreign investment income such as dividends and interest, and pensions held in other countries.

Current Tax Rates for 2025/26

Taxable Income Band	Tax Rate
£0 – £12,570	0% (Personal Allowance)
£12,571 – £50,270	20% (Basic Rate)
£50,271 – £125,140	40% (Higher Rate)
Over £125,140	45% (Additional Rate)

Foreign Income and Gains Relief

From 6 April 2025, new arrivals to the UK may qualify for Foreign Income and Gains relief. This provides a 100% exemption from UK taxation on foreign income and gains during the first four years of UK tax residence, provided the individual has not been UK resident in any of the ten consecutive years prior to arrival.

Foreign Tax Credit Relief

If you have paid tax on your foreign income in the country where it arose, you may claim Foreign Tax Credit Relief to avoid being taxed twice on the same income. The relief is limited to the lower of the foreign tax paid or the UK tax due on that foreign income.

Many countries have Double Taxation Agreements with the UK, which specify how different types of income should be taxed and prevent double taxation. The relief claimed cannot exceed the amount permitted under these treaties.

Step-by-Step Guide to Calculating Your Tax

Step 1: Determine Your Total Income

Add together all sources of income, both UK and foreign. This includes employment income, self-employment profits, rental income, investment income, and pension income.

Step 2: Apply Personal Allowance

For 2025/26, the personal allowance is £12,570. This means the first £12,570 of your total income is tax-free. Note that this allowance is reduced if your income exceeds £100,000, at a rate of £1 for every £2 over this threshold.

Step 3: Calculate UK Tax on Total Income

Apply the appropriate tax rates to your taxable income after deducting the personal allowance. The rates are progressive, meaning different portions of your income are taxed at different rates.

Step 4: Calculate Tax on UK Income Only

Repeat the calculation considering only your UK income. This helps determine the proportion of tax attributable to your foreign income.

Step 5: Determine Foreign Tax Credit

The foreign tax credit is the lower of the foreign tax actually paid or the UK tax due on the foreign income. This prevents you from paying more than the higher of the two tax rates.

Step 6: Calculate Final Liability

Subtract the foreign tax credit from your total UK tax liability to arrive at the amount you need to pay to HMRC.

Types of Foreign Income

Employment Income

Wages, salaries, bonuses, and other employment benefits received from work performed abroad are taxable in the UK for residents. You must report this income even if the employer is based overseas and the work was performed outside the UK.

Investment Income

This includes dividends from foreign companies, interest from overseas bank accounts and bonds, and income from foreign trusts or estates. Different rates may apply to dividend income compared to other income types.

Rental Income

Income from letting property located outside the UK is taxable on UK residents. You can deduct allowable expenses such as property management fees, maintenance costs, and mortgage interest, subject to the same rules that apply to UK rental income.

Pension Income

Foreign pensions, whether from government schemes or private arrangements, are generally taxable in the UK. However, some Double Taxation Agreements specify that certain pensions should only be taxed in the country paying them.

Reporting Requirements

If you have foreign income that is taxable in the UK, you will typically need to complete a Self Assessment tax return. The specific pages you need to complete depend on the type and amount of foreign income.

Foreign income should be converted to pounds sterling at an appropriate exchange rate. HMRC accepts the use of average annual rates published by themselves, or actual rates on the dates income was received.

You must keep records of your foreign income, foreign tax paid, and any calculations you have made for at least five years after the 31 January submission deadline for the relevant tax year.

Frequently Asked Questions