Tax on Foreign Savings and Other Investment Income

As far as savings and investments are concerned, the tax system may seem complex enough when you are dealing solely with UK-based financial affairs. When one becomes involved in overseas investment, however, things appear to become even more convoluted. But with a little forethought, there is no reason why it should become problematic.

Overseas Income

Any income that comes from territory other than England, Northern Ireland, Scotland or Wales is counted as ‘overseas income’. It is important to note that income derived from activities in the Channel Islands and the Isle of Man constitutes overseas income. This article is concerned specifically with overseas savings and investment income, which includes any interest that has accrued on bank or building society accounts, rent and other payments associated with property, and dividends from shares.

In the majority of cases, you are likely to find that your savings and investments will be subject to taxation in the country in which they are held. In the past, this would have meant that individuals who have such arrangements abroad would be required to pay tax in both the country in question and in the UK. In order to tackle this problem, the British government has signed ‘double taxation agreements’ with a large number of countries. If your savings and investments are held in a country with which the UK has a double taxation agreement, you will be eligible for some tax relief.

Relief Limits

If you are eligible for relief under the double taxation scheme, the amount that you can claim is calculated with reference to the terms of the agreement with the country in question. Regardless of the country, however, you will be eligible for relief on either the minimum amount due in the foreign country or on the maximum amount due in the UK – whichever is lower. As a result, you will still need to be familiar with the relevant tax codes of the countries in which your investments are held.

It is also important to note that dividend income is treated slightly differently to other forms of savings and investments for the purposes of overseas income. In these cases, countries with which the UK has double taxation agreements are obliged to levy tax at a set rate for UK citizens, known as a ‘withholding tax’.

When applying for relief on tax paid on this income in the UK, you will therefore only be able to claim for this amount. It is fairly common, however, for the countries in question to charge more than the agreed withholding rate. The correct rates are all outlined in the appendices to the Self Assessment form, but HM Revenue & Customs cannot deal with overpayment of foreign taxes. Therefore, if you think you have paid too much tax abroad, you must approach the relevant foreign tax office directly.

Overseas income can only be paid via Self Assessment. There is a dedicated section in the Self Assessment form that deals solely with overseas income, and this should be completed thoroughly. The list of countries with which the UK has double taxation agreements is available on the Directgov website. If you have already paid tax to a country on this list, you should approach your own tax office for specific advice on how best to act.