Tax Advantages for Foreigners in the UK

The UK is a top destination for foreigners, offering economic and political stability, world-class education, access to global financial markets, and a business-friendly environment with a robust legal system, widespread use of English, and a strategic time zone for international trade. For non-domiciled individuals, the UK provides significant tax benefits, notably through the remittance basis, making it ideal for wealthy individuals, entrepreneurs, and investors. This guide outlines the UK’s tax advantages for foreigners, focusing on residency, domicile, and practical steps for compliance in the 2025/26 tax year.

Understanding Tax Residency and Domicile

Tax Residency: Determined by the Statutory Residence Test (SRT), which assesses days spent in the UK and ties such as family, work, or accommodation. Spending 183 or more days in the UK during a tax year (6 April to 5 April) automatically makes you a UK tax resident, liable for tax on worldwide income unless you opt for the remittance basis.

Domicile: A legal concept defining your permanent home, distinct from residency or nationality. You typically inherit a domicile of origin at birth (usually from your father, or mother if parents are unmarried) or adopt a domicile of choiceby intending to settle permanently, evidenced by property ownership, family ties, or a will. Non-domiciled UK residents, often foreigners, can access tax reliefs unavailable to UK-domiciled individuals.

The Remittance Basis: A Key Tax Benefit

Non-domiciled UK residents can choose annually between two tax bases via their Self-Assessment tax return:

• Arising Basis: Taxes all worldwide income and gains as they occur, regardless of location.

• Remittance Basis: Taxes only UK-sourced income and gains, plus foreign income or gains brought (remitted) to the UK, such as funds transferred to a UK bank account or assets used in the UK.

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Benefits of the Remittance Basis

1. Tax-Free Foreign Income: Foreign income (e.g., offshore investments, rental income) and gains are not taxed unless remitted. Income or gains earned before becoming UK tax resident can be brought to the UK tax-free.

2. Annual Flexibility: Switch between arising and remittance bases each year to minimise tax liability.

3. Inheritance Tax (IHT) Relief: Non-domiciled residents pay IHT (40% on amounts above £325,000 for 2025/26) only on UK-situated assets, not worldwide assets, unlike UK-domiciled residents.

   
   

Remittance Basis Charges (2025/26)

The remittance basis is free in some cases but may incur a charge based on residency duration and foreign income:

• No Charge: If unremitted foreign income and gains are below £2,000 at tax year-end (5 April), the remittance basis applies automatically.

• £30,000 Annual Charge: For individuals resident in the UK for at least 7 of the last 9 tax years.

• £60,000 Annual Charge: For those resident for 1 or more of the last 14 tax years.

• Trade-Off: Choosing the remittance basis forfeits the Personal Allowance (£12,570 tax-free income) and Capital Gains Tax (CGT) annual exemption (£3,000).

  
  

To use the remittance basis, claim it on your Self-Assessment tax return by 31 January following the tax year. If not claimed or denied by HMRC, you default to the arising basis, taxing all global income and gains.

Example

A non-domiciled UK resident with a £60,000 UK salary and £150,000 in foreign rental income chooses the remittance basis in 2025/26. They pay:

• UK Income Tax on the £60,000 salary (£9,486 at 20% after losing the Personal Allowance).

• No UK tax on the £150,000 foreign income unless remitted.

• A £30,000 charge (if resident 7–11 years) or £60,000 (12+ years).

• If £30,000 of foreign income is remitted, they pay additional tax (e.g., £6,000 at 20% if in the Basic Rate band).

  
  

Other Tax Advantages for Foreigners

1. Business Investment Relief: Non-domiciled residents can remit foreign income or gains tax-free if invested in qualifying UK businesses (e.g., shares in trading companies). Only gains on the investment are taxable upon sale.

2. Double Taxation Agreements (DTAs): The UK has DTAs with over 130 countries, including Russia and many Eastern European nations, to prevent double taxation. You can claim exemptions or tax credits via HMRC or the foreign tax authority.

3. Capital Gains Tax (CGT): Non-residents pay CGT (10%–20% for most assets, 18%–24% for residential property in 2025/26) only on UK property or business disposals, not foreign assets.

4. Inheritance Tax (IHT): Non-domiciled residents are exempt from IHT on non-UK assets, offering significant savings for offshore wealth.

5. Non-Resident Companies: Foreign-owned UK companies (e.g., LTDs) pay Corporation Tax (19% or 25% for 2025/26) only on UK-sourced profits, not global profits, if they lack a UK permanent establishment.

   
   

Considerations for Foreigners

• US Citizens: Subject to US federal taxes on worldwide income due to citizenship-based taxation. The UK-US DTA can mitigate double taxation through credits or exemptions.

• Visa Holders: Those on visas like Innovator Founder or Global Talent (successors to Tier 1 schemes) can use the remittance basis if non-domiciled but must monitor UK days to manage tax residency. Staying below 90–120 days annually (depending on ties) can avoid tax residency.

• Compliance: Keep detailed records of foreign income, remittances, and UK days to support your Self-Assessment tax return. Late filing incurs a £100 penalty, increasing after three months.

• Tax Planning: Time remittances strategically (e.g., bring pre-residency income before becoming UK tax resident) to minimise tax liability.

  
  

Practical Steps to Maximise Tax Benefits

1. Assess Residency and Domicile: Use the SRT to confirm residency status and consult an accountant to verify domicile, as it significantly impacts tax obligations.

2. File Self-Assessment: Submit by 31 January annually, claiming the remittance basis if beneficial, and declare UK and (if applicable) worldwide income.

3. Leverage DTAs: Apply for relief under relevant DTAs through HMRC or your home country’s tax authority to avoid double taxation.

4. Monitor UK Days: Track days spent in the UK to stay below SRT thresholds if aiming to avoid tax residency.

5. Plan Remittances: Avoid unintended remittances (e.g., using foreign income for UK expenses) to reduce tax liability.

   
   

Need Expert Support?

The UK’s tax regime offers compelling advantages for non-domiciled foreigners, but navigating residency rules, remittance basis charges, and DTAs requires expertise. Foundry Accounting’s qualified accountants in London can assist with tax planning, Self-Assessment filings, and maximising your tax benefits. Contact us at foundryaccounting.co.uk for personalised guidance.