Discover Exactly How Your Foreign Salary Is Taxed as a UK Tax Resident

If you’re UK tax resident, your foreign salary normally forms part of your UK taxable income.

Getting it wrong can leave you facing unexpected tax bills, penalties or unrelieved double tax. Here’s what you need to know—and how SAIL International can help you stay compliant and keep more of your earnings.

UK Residence and Worldwide Income

• Under the Statutory Residence Test (Finance Act 2013, Part 2), UK residents are taxed on their “worldwide income.”
• Your foreign salary must be reported on your Self Assessment return, even if you never remit it to the UK.

Currency and Reporting

• Convert your salary into GBP using the annual average exchange rate (HMRC’s “year-end and average rates”).
• Report the gross figure on the Employment pages of your SA100 tax return.

Double Tax Relief (DTR)

• Most countries have a double tax treaty with the UK. Under Income Tax Act 2007, s 809A, you can claim credit for foreign tax paid up to the amount of UK tax on the same income.
• If there’s no treaty, unilaterally claim Foreign Tax Credit Relief (ITAX 2007, s 809B) subject to UK limits.

National Insurance Contributions (NIC)

• UK NIC applies where you have a UK employment contract—even if duties are abroad—unless you hold a valid Certificate of Continued Liability (“A1” or “PDH” form) under EU rules or a social security agreement.
• If you’re genuinely employed and paid abroad under a foreign contract, UK NIC may not apply.

At SAIL International we can help with:

1. Review your UK residence status and more importantly help you consider your global tax position looking at all countries and sources of income.
2. Calculate the correct sterling equivalent of your foreign salary.
3. Advise on treaty claims and prepare your DTR or FTC relief schedules.
4. Liaise with HMRC on NIC certificates of coverage.
5. Handle your Self-Assessment filing to meet all deadlines and avoid penalties.

For example: John, a UK tax resident, works for a German employer under a German contract and earns €60,000 gross. He pays €12,000 income tax in Germany.

1. Convert salary: €60,000 @ 0.86 = £51,600
2. UK liability on £51,600:
   1. Personal Allowance £12,570 @ 0% = £0
   2. Basic rate £37,030 @ 20% = £7,406
   3. Higher rate £0 = £0
3. Total UK tax = £7,406
4. German tax credit: claim up to £7,406 under the UK-Germany treaty. Actual German tax EUR12,000 (€12,000 @ 0.86 = £10,320) is capped at £7,406.
5. Net further UK tax due = £0 (although he has paid EUR12,000 in Germany)
6. If John held a UK contract but worked from Germany without an A1 certificate, he could owe up to 12% employer’s NIC and 2% employee’s NIC on the full £51,600.

Any overseas salary you earn must be declared to HMRC if you’re UK tax resident.

However, with proper planning you can avoid double taxation and NIC surprises. Whether you’re on an overseas secondment or fully remote SAIL has the expertise to safeguard your position.

Contact us for a full review of your overseas employment income and bespoke relief planning by booking a FREE call here.

Disclaimer
This note provides general guidance only on UK taxation. Individual circumstances will differ. SAIL International does not warrant any specific outcome. We recommend you seek tailored advice before acting.