Navigating UK Tax on Foreign Income: What Small Business Owners Need to Know

If you’ve got a side hustle overseas, own a rental in Spain, or earn dividends from a foreign company, HMRC wants to hear about it. Foreign income can be a real grey area for UK taxpayers, but ignoring it could land you in hot water with the taxman. So, let’s unpack what it means for your business (and your wallet).

What Is Foreign Income and Who Needs to Declare It?

If you’re a UK tax resident, you’re generally taxed on your worldwide income. That means any money you make abroad—whether it’s from freelancing in France or a buy-to-let in Bulgaria—must be declared on your UK tax return.

You’ll need to declare:

• Foreign employment or freelance income
• Rental income from overseas property
• Interest from international bank accounts
• Dividends from foreign companies
• Capital gains from selling property or shares abroad
• Overseas pensions

If you’re non-resident in the UK, you’re usually only taxed on income that’s UK-based (think rental income from a UK property or a UK pension).

How to Report It (Without Losing Your Head)

All foreign income must be reported through the Self Assessment system using the standard SA100 form, along with the SA106 ‘Foreign’ pages. These ask for gross amounts—before any tax is taken off abroad.

This is where things get interesting: if you’ve paid tax abroad on that income, you may be able to claim Foreign Tax Credit Relief (FTCR) to avoid being taxed twice.

FTCR gives you relief equal to the lower of:

• The tax you paid abroad, or
• The UK tax due on the same income

Sounds fair, right? But it only works with countries that have a Double Taxation Agreement (DTA) with the UK. Fortunately, the UK has one with most major economies.

What’s This About the Remittance Basis?

If you’re UK-resident but not domiciled (i.e. your permanent home is abroad), you might be able to use the remittance basis of taxation.

Under this setup:

• You’re only taxed on foreign income if you bring it into the UK
• It’s free for the first few years of residence
• After seven years, you may face a Remittance Basis Charge of £30,000 or more

This can be handy if you earn abroad but don’t need the money in the UK—though it’s definitely not for everyone.

Exchange Rates: Don’t Guesstimate

HMRC requires that you convert all foreign income into GBP using its official exchange rates. It must reflect the rate when the income was received—not when you filed your return or moved the money around.

What If You’re a Non-Resident?

UK non-residents still need to report UK-sourced income, such as:

• UK rental income (under the Non-Resident Landlord Scheme)
• Earnings for work done in the UK
• UK pensions
• Capital gains on UK residential property

You’ll typically need to complete a Self Assessment return. For rental income, the NRL1 form allows landlords to receive rental payments gross (i.e., without tax withheld).

Special Cases to Watch For

Split-Year Treatment: If you move in or out of the UK mid-tax year, you may qualify for this. Only income from the UK-resident portion of the year is taxed.

Temporary Non-Residents: Left the UK for a couple of years? If you come back within five years, some gains made while abroad may be taxed retrospectively.

Double Taxation Treaties: These are gold for preventing tax nightmares. Check if your country has one with the UK on the HMRC website.

Case Study: Meet Sarah – A Designer With a Spanish Rental

Sarah runs a graphic design business in Bristol. She also owns a holiday flat in Alicante that she lets out on Airbnb.

• She’s a UK tax resident, so she must declare both her UK income and her Spanish rental income.
• The income is reported in her Self Assessment, using SA106.
• She pays tax in Spain but can claim FTCR for the Spanish tax paid.
• She converts her rental earnings into GBP using HMRC’s exchange rate from the date she received each payment.

Sarah also has a small French pension from an old job—but because she never remitted it to the UK, she elects to use the remittance basis. Because she’s been in the UK less than 7 years, there’s no Remittance Basis Charge. Win-win.

Summary: What You Need to Do

Status	Declare UK Income	Declare Foreign Income	Self-Assessment Required	FTCR Available	Remittance Basis Available
UK Resident	✅	✅	✅ (if foreign income)	✅	✅ (if non-domiciled)
UK Non-Resident	✅	❌ (unless UK source)	✅ (if UK source income)	❌	❌

Foreign income rules aren’t always straightforward, but they’re manageable when you know what to look for—and that’s where Helpbox comes in.

Whether you’re dealing with overseas investments, property abroad, or just a bank account in Ireland, don’t second-guess it. Get in touch with Helpbox, and we’ll help you navigate the ins and outs so you stay compliant and tax-efficient.