How UK Residents Can Legally Avoid Paying Tax Twice on Foreign Income

For UK residents earning income overseas, one of the most frustrating issues is double taxation. This happens when the same income is taxed both in the UK and in the country where it was earned. The UK generally taxes residents on worldwide income, meaning earnings, pensions, rental profits and investment returns from abroad often need to be declared to HMRC. At the same time, foreign tax authorities may also take a share. Without proper planning, you could find yourself paying tax twice on the same income.

To prevent this, the UK uses a combination of double taxation agreements (DTAs), foreign tax credit relief and, for eligible new arrivals from April 2025, the new Foreign Income & Gains (FIG) regime. Understanding these rules is essential for UK residents receiving overseas income, whether for employment, pensions, rental property, or investment returns.

What Does Double Taxation Mean?

Double taxation occurs when more than one country taxes the same income. For UK residents, this usually happens because the UK applies tax on worldwide income. This means income earned abroad may still be taxable in the UK, even if tax has already been paid in the country of origin. A typical example is someone working abroad and taxed locally, only to find HMRC requires the same income to be reported in the UK. The same applies to foreign pensions, overseas rental profits, dividends from international shares and capital gains from selling property or investments overseas.

Without reliefs, individuals could be taxed twice, but HMRC sets out rules to prevent this where possible, provided the income is correctly declared and the appropriate relief is claimed.

How UK Residency Determines Tax

Your tax position depends first on whether you are considered a UK resident under the Statutory Residence Test (SRT). This test determines residency based on time spent in the UK and your personal ties, such as home, family or work. If you move to or from the UK mid-year, you may qualify for split-year treatment so only part of the year is taxed as UK-resident. Dual residency cases are resolved under double-tax treaty “tie-breaker” rules, considering factors such as where your permanent home and economic interests are located. Understanding residency status under the SRT is the foundation for determining how your foreign income will be taxed.

Foreign Income Taxable in the UK

UK residents normally pay UK tax on worldwide income and gains. This includes foreign employment income, overseas pensions, rental profits from property abroad, interest and dividends from foreign investments and capital gains when selling overseas property or shares. Currency conversion does not create a tax bill and transferring money between overseas and UK bank accounts does not create a liability by itself. What matters is when and how the income arose. If it was earned while you were UK-resident, it will generally be taxable here.

From 6 April 2025, the remittance basis will be replaced by the FIG regime, allowing eligible new UK residents to avoid UK tax on foreign income and gains for up to four years. Others will be taxed on the arising basis, meaning they must declare all worldwide income.

When Foreign Income May Not Be Taxed Twice

Not all foreign income ends up taxed twice. Every UK resident has access to certain tax-free allowances, including the personal allowance unless income is too high. HMRC double-tax treaties can exempt some foreign income entirely or allow foreign tax credit relief, ensuring you do not pay more than the higher of the two countries' tax rates. Under the FIG regime, eligible individuals can receive foreign income and gains tax-free for up to four years and can remit them to the UK without charge. However, FIG claimants lose UK personal allowances during those years.

How Double Tax Treaties Prevent Double Taxation

The UK has one of the world's most extensive treaty networks, with more than 130 agreements ensuring income is not taxed twice. Treaties determine which country has taxing rights and whether the UK gives full exemption or credit relief for overseas tax. Employment income is usually taxed where work is performed, though short-term overseas assignments may be exempt. Many treaties reduce withholding tax on overseas dividends and interest, and treaty rules often specify where pensions are taxed. Where both countries tax the same income, the UK usually allows a foreign tax credit to avoid double charges.

Foreign Income & Gains (FIG) Regime

From April 2025, the FIG regime replaces the remittance basis for new UK arrivals. It applies only to people who have been non-resident for at least ten consecutive tax years before becoming UK resident. For up to four tax years, their foreign income and gains are not taxed in the UK, and they can bring funds into the UK without a charge. They lose personal allowances during FIG years but often still benefit overall. A Temporary Repatriation Facility allows older untaxed foreign income to be brought to the UK at reduced flat tax rates between 2025 and 2028.

Foreign Pensions and Double Taxation Rules

Foreign pensions received by UK residents are normally taxable here at personal rates. However, some treaties give taxing rights to the country where the pension originates, reducing or eliminating UK tax. UK Government service pensions are usually taxed only in the UK unless a treaty allows otherwise for nationals of the other country. Pension tax treatment varies significantly across treaties, so checking the specific treaty terms is key.

Capital Gains on Overseas Assets

UK residents are taxed on gains from selling worldwide assets, including foreign property and shares. If someone leaves the UK and sells assets abroad but returns within five full tax years, gains may still be taxed in the UK under temporary non-residence rules. Most treaties do not override UK tax on UK land or property, meaning even non-residents may face UK tax on UK property disposals. Planning disposals ahead of international moves is essential.

Avoiding Double Taxation in Practice

Avoiding double taxation requires good record-keeping, evidence of foreign tax paid and accurate reporting on HMRC Self-Assessment foreign income pages. Records of currency conversion and clear separation of foreign capital and income help demonstrate the correct tax treatment. Checking treaty rules before receiving overseas income can prevent unnecessary tax. Claims for foreign tax credit relief normally must be made within four years of the tax year. Professional advice is recommended, particularly where multiple income types or countries are involved.

How YRF Accountants Can Help

Cross-border taxation is complex, and errors can lead to unnecessary tax bills, penalties or lost relief. At YRF Accountants, we assist with UK residency analysis, applying treaty rules, completing HMRC foreign income forms and claiming foreign tax relief. We also advise internationally mobile individuals and investors on structuring income and assets tax-efficiently and planning moves in and out of the UK. Our role is to protect you from double taxation and ensure full compliance while keeping your tax exposure as low as legally possible. If you need guidance with international tax or support with reporting foreign income, our expert team is ready to help.

For tailored help with global tax matters, speak to YRF Accountants today and ensure your overseas income is handled correctly and efficiently.