Advanced Taxation (UK) · Income tax: the scope of income tax, residence and overseas aspects

Taxation of Overseas Income and Foreign Aspects in ATX-UK

Updated 11 October 2026 · Fact-checked

UK residents are taxed on worldwide income and gains as they arise. New arrivals who were non-resident for the previous ten consecutive tax years can claim the foreign income and gains regime for their first four years of residence, but lose the personal allowance and CGT annual exempt amount. Non-residents are taxed only on UK-source income.

Understand Taxation of Overseas Income and Foreign Aspects

Your tax position starts with residence. A UK resident is taxed on income and gains from all over the world. A non-resident is taxed only on income and gains with a UK source, and in general not on UK capital gains except on UK land and similar. Always settle residence first, using the statutory residence test and the table of days and UK ties that ACCA gives you.

Under the current rules, the arising basis is the default for a UK resident. Foreign income is taxable in the tax year it arises, whether or not you bring the money to the UK. The old remittance basis, which depended on domicile, no longer applies in the same way for the years you are examined on. Residence, not domicile, now drives the answer.

There is one major relief for new arrivals: the foreign income and gains (FIG) regime. It is available for the first four tax years of UK residence, and only if the individual was non-resident for the ten consecutive tax years before they arrived. During those four years, foreign income and gains can be left out of the UK charge if the individual makes a claim. UK-source income and gains stay taxable in the normal way.

The claim has a cost. An individual who claims for a year loses the personal allowance and the CGT annual exempt amount for that year. So you must compare the tax with and without the claim. When the foreign income is small, claiming can leave the client worse off. After the four years end, the arising basis applies in full.

For foreign income that is taxable, the normal UK rates apply by type of income: foreign interest is savings income, foreign dividends use the dividend rates, and overseas rent is taxed as an overseas property business. Foreign tax already paid is usually dealt with by double tax relief, which gives a credit for the lower of the foreign tax and the UK tax on that income.

Key rules to remember

Residence basis of charge: UK resident: worldwide income and gains (arising basis). Non-resident: UK-source income only; Decide residence first using the statutory residence test and the day and ties table given in the exam.
FIG regime conditions: Non-resident for the previous 10 consecutive tax years, then claim in each of the first 4 tax years of UK residence; Foreign income and gains are then outside UK tax for that year. It is an annual claim, so you can choose year by year.
Cost of claiming FIG: Claim made = no personal allowance and no CGT annual exempt amount (£3,000) for that year; Compare tax with and without the claim. Do not assume claiming is always better.
Income tax rates (2025/26): Non-savings: 20% to £37,700, 40% to £125,140, 45% above. Dividends: 8.75%, 33.75%, 39.35%. Dividend nil rate band £500; Savings nil rate band is £1,000 for basic rate and £500 for higher rate taxpayers. Additional rate taxpayers get none.
CGT rates: 18% lower rate, 24% higher rate, annual exempt amount £3,000; For a resident not claiming FIG, foreign gains are taxed in the year of disposal.
Double tax relief (unilateral or treaty): Credit = lower of (foreign tax suffered, UK tax on that foreign income); Work out UK tax on each source of foreign income separately. Foreign tax above the treaty rate is not creditable.

How to solve Taxation of Overseas Income and Foreign Aspects questions

Use the same sequence for any overseas income question. It keeps you from missing marks on residence, the claim choice and relief.

1Establish residence for each tax year in the question. Use days in the UK, whether the person was previously resident, and the number of UK ties, from the table given.
2If non-resident, list only UK-source income and gains. Say that foreign income is outside the charge.
3If resident, check whether the person qualifies for the FIG regime: ten consecutive years of non-residence before arrival, and still within the first four tax years of residence.
4If FIG is available, compute tax both ways: with the claim (foreign items excluded, no personal allowance, no CGT annual exempt amount) and without it (worldwide arising basis, allowances kept).
5Compute the tax on the arising basis by type of income: non-savings, then savings, then dividends, applying the correct bands and nil rate bands.
6Deduct double tax relief for each foreign source: the lower of foreign tax and UK tax on that income.
7Compare the totals, state which option saves tax, and note any later effect, such as the claim ending after four years.
8Add any short advice the requirement asks for, such as a planning point, in clear client-ready wording.

Quickest way: Claim or no claim: a fast comparison

When to use it: Use when a new arrival has foreign income or gains and the question asks whether to claim the FIG regime.

Compute tax on UK income only, with no personal allowance. This is the claim figure.
Compute tax on UK plus foreign income, with the personal allowance, and deduct foreign tax credits. This is the no-claim figure.
Compare. A quick check: the personal allowance is worth up to £5,028 at 40% on non-savings income. Claiming is better only when the UK tax on the foreign income and gains is more than the value of the lost allowances. If the tax saved on the foreign income is less than about £5,028, plus the CGT saving on any gains, claiming is not worthwhile.
If gains are involved, also compare the lost £3,000 annual exempt amount against the CGT on the foreign gain.

Common mistakes in Taxation of Overseas Income and Foreign Aspects

Taxing a UK resident only on remitted foreign income.
Students remember the old remittance basis for non-domiciled individuals.
Fix: State that the arising basis is the default for a UK resident, and use the FIG regime only for qualifying new arrivals.
Giving the FIG regime to anyone newly resident, without checking the ten-year test.
Students focus on the four years and forget the prior non-residence condition.
Fix: Count the earlier tax years and check they are ten consecutive years of non-residence before applying the regime.
Keeping the personal allowance and CGT annual exempt amount when the FIG claim is made.
Students treat the claim as free.
Fix: Remove both allowances for any year in which a claim is made, and compute the tax before choosing.
Giving credit for the full foreign tax suffered.
Students forget the limit on double tax relief.
Fix: Credit the lower of foreign tax and UK tax on that income, source by source.
Taxing a non-resident on foreign income, or treating all UK income as exempt.
Students mix up residence and source.
Fix: Non-residents are taxed on UK-source income, so list the UK items and exclude all foreign items.
Using the wrong rate for foreign dividends or interest.
Students apply the non-savings rates to all income.
Fix: Treat foreign interest as savings income and foreign dividends as dividends, and apply the nil rate bands that fit the taxpayer's band.

Worked examples

Example 1

Maria moved to the UK on 1 June 2025. She had been non-resident for the previous twelve tax years and is UK resident for 2025/26. In 2025/26 she has a UK salary of £60,000, foreign interest of £2,000 and foreign dividends of £8,000. Ignore foreign tax. Advise whether she should claim the FIG regime for 2025/26. Use a personal allowance of £12,570.

Show the solution

Maria was non-resident for at least ten consecutive tax years before arriving, and 2025/26 is her first year of residence, so she can claim.
No claim: total income is £60,000 + £2,000 + £8,000 = £70,000. After the personal allowance of £12,570 the non-savings income is £47,430.
Non-savings tax: £37,700 × 20% = £7,540. The remaining £9,730 × 40% = £3,892. Total £11,432.
Savings: the £2,000 falls in the higher rate band, so the savings nil rate band is £500. Tax is £1,500 × 40% = £600.
Dividends: £8,000 less the £500 dividend nil rate band is £7,500. Tax is £7,500 × 33.75% = £2,531 (rounded). Total tax without a claim is £11,432 + £600 + £2,531 = £14,563.
Claim: foreign interest and dividends are excluded and there is no personal allowance. Tax on £60,000: £37,700 × 20% = £7,540, and £22,300 × 40% = £8,920. Total £16,460.
Compare: £16,460 with a claim against £14,563 without.

Answer: Maria should not claim. The claim would cost £16,460 against £14,563 without it, so she saves £1,897 by taxing the foreign income on the arising basis and keeping her personal allowance.

Example 2

Jon is a UK resident in his sixth tax year of residence, so the FIG regime is not available. He is a higher rate taxpayer and has not used his dividend nil rate band elsewhere. In 2025/26 he receives a foreign dividend of £10,000 gross, after which £1,500 of foreign withholding tax was suffered. Assume the foreign tax is at the treaty rate. Compute the UK tax payable on the dividend.

Show the solution

Jon is on the arising basis, so the whole £10,000 gross dividend is taxable in 2025/26.
The first £500 is covered by the dividend nil rate band, so £9,500 is taxed at the higher dividend rate of 33.75%.
UK tax on the dividend: £9,500 × 33.75% = £3,206 (rounded).
Double tax relief is the lower of foreign tax of £1,500 and UK tax of £3,206, which is £1,500.
UK tax payable: £3,206 − £1,500 = £1,706.

Answer: UK tax payable on the foreign dividend is £1,706, after double tax relief of £1,500.

Exam tips

Start every answer with one line on residence. Examiners give marks for the basis of charge, and professional skills marks for a clear opening.
When the FIG regime is available, show both calculations and then a clear recommendation. A one-sided answer loses the comparison marks.
Show the working for double tax relief source by source, and name the lower of the two figures. Quote the tax tables given in the exam rather than from memory.
Write brief client-ready advice, such as the claim ending after four years, when the requirement asks for advice and not just a calculation.
Check the dates carefully. The tax year, the arrival date and the ten-year test decide which basis applies.

Practice questions from Income tax: the scope of income tax, residence and overseas aspects

Taxation of Overseas Income and Foreign Aspects: frequently asked questions

What is the FIG regime in ATX-UK?

It lets a new arrival claim to leave foreign income and gains outside UK tax in each of the first four tax years of residence. The individual must have been non-resident for the previous ten consecutive tax years. UK-source income and gains stay taxable.

Is the remittance basis still examined?

For the years in this syllabus the arising basis is the default for UK residents, and the FIG regime replaces the old relief for new arrivals. Your main task is the arising basis with the claim comparison. Always read the question to see which rules it tells you to apply.

What is the difference between UK resident and non-resident tax liability?

A UK resident is taxed on worldwide income and gains as they arise. A non-resident is taxed only on UK-source income, and generally not on foreign income or on UK gains other than on UK land and similar assets. Residence is decided by the statutory residence test.

What do you lose by claiming the FIG regime?

For any year in which a claim is made you lose the personal allowance and the CGT annual exempt amount. That is why you compare the tax with and without the claim. If foreign income is small, a claim can cost more than it saves.