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How to Declare Foreign Income

Newsletter issue - October 07.

When you live in the UK you must declare all of your taxable income on your tax return form, including any foreign income; such as rents from overseas properties, interest from off-shore bank accounts or dividends from foreign companies. Some people believe that foreign income does not have to be shown on a UK tax return, because the basic tax return form and the short version tax return form do not have boxes for foreign income, but it does.

If you receive any sort of foreign income you need to answer question 6 on page 2 of the tax return and complete the foreign income pages, which have a pale green tab top. These extra pages can be ordered from HMRC. If you normally complete your own tax return online, reporting foreign income can cause a problem, as the tax return software provided free by the Taxman does not currently support the foreign income pages. In this case you need to use some third party software to complete the foreign income pages or complete your whole tax return on paper instead of online or just let us do it all for you.

There is an alternative if your foreign income consists of less than £300 of dividends from an overseas company such as Bank Santander (who own Abbey National Bank). In this case you can enter the foreign dividends in box 5.5 on short form tax return form, or on page 3 of your tax return form, even on the online version. There will be no difference in the tax you pay as a basic rate taxpayer, but as a higher rate taxpayer you will not get the full benefit of the overseas tax deducted from the dividends.

If you receive other types of foreign income, you must complete the foreign income pages to report the gross amounts and any expenses to set against the income, even if the money has not been paid into a UK bank account. If you have the special 'non-domicile' status (see below) you are not taxed on foreign income that is kept outside of the UK, but you must still make a special claim for this treatment to apply on your tax return each year.

If you feel you have incorrectly declared foreign income in the past and so potentially liable to tax, interest and penalties please speak to us about the best way to deal with this.