Do I have to pay tax on overseas investments?
Thinking of expanding your investment portfolio overseas? Make sure you understand the tax rules.
If you’re considering investing in overseas assets, you might be wondering about the tax implications. Here, we explain the overseas investment tax charges you might incur as a UK resident and how to avoid double tax on overseas investments.
What are overseas investments?
Overseas investments are where you put money into assets that are based in another country, rather than the UK. One of the most common ways for investors to do this is to buy overseas shares in a company based in the US or Europe, for example.
How does tax work on UK investments?
When you invest in UK shares or investments, you may be liable for a few different taxes. These include the following:
- Stamp duty reserve tax (SDRT): This is a 0.5% tax that is usually deducted automatically when you buy the shares.
- Capital gains tax (CGT): This is a tax you pay on the profit or “gain” you make between buying and selling investments. Everyone has an annual CGT allowance (£12,300 for the 2022–23 tax year) on which they don’t have to pay any tax. Any gain above this is potentially liable for CGT. The rate depends on whether you’re a basic or higher-rate taxpayer.
- Dividend tax: If your shares pay dividends, then you may be liable for dividend tax. You have an annual dividend allowance of £2,000. Above this, tax is charged at 8.75% for basic-rate taxpayers, 33.75% for higher-rate taxpayers and 39.35% for additional-rate taxpayers (as of October 2022).
- Income tax: This is payable on the interest you earn from certain types of investment, such as government or corporate bonds.
You can find out more about the tax you may need to pay on UK investments in our full guide to tax on investments.
Are the tax rules different on overseas investments compared to UK investments?
If you are a UK resident, you need to pay relevant UK taxes on all of your investment income or gains. This applies whether investments are UK-based or overseas. In theory, provided that your overseas investments are in countries that the UK has a “double-taxation agreement” with, you shouldn’t usually need to pay any overseas tax on top of this.
However, it doesn’t always quite work like this in practice. There may be some countries where either there is no double-taxation agreement or the rules work slightly differently.
Non-UK residents only need to pay UK tax on UK investments. They must follow the tax rules in their country of residence for non-UK investments.
How much tax do I pay on overseas investments?
HMRC won’t charge any more (or less) UK tax on overseas investments than on UK investments. You should usually report income and gains from overseas investments in a Self Assessment tax return. But, in some cases – particularly with income from dividends on overseas shares – the foreign tax authority may deduct its own version of dividend tax before you receive the dividend. In such cases, you may need to take extra steps to avoid being taxed twice.
How much can foreign tax authorities deduct from my dividend income?
Under the UK’s tax agreements with most countries, the typical tax rate on dividends is 15%. In some cases, the rate will be lower or even nothing at all.
Is there a risk of paying tax twice on overseas investments?
Tax on capital gains is pretty straightforward. Usually, you simply declare your gains on overseas investments on your UK tax return and pay CGT as required. You won’t need to also declare gains in the foreign country and won’t be liable for its tax. As such, there’s little risk of being charged twice, so you will not usually need to make a claim.
With other forms of investment income, such as share dividends, many countries will levy their own taxes. So when you receive a foreign dividend, it will often have had some tax deducted at source – but you’ll still be liable for UK tax, risking double taxation. However, you should be able to offset some or all of any foreign tax you’ve paid against your UK tax bill.
Can I claim back foreign tax on overseas investments?
You can usually claim tax relief for any foreign tax you’ve paid. How you claim depends on whether your foreign income has already been taxed, which in turn may depend on the specific country.
- If the country where your investments are held has a double-taxation agreement that requires it, you should apply for tax relief before you get taxed on foreign income. Ask the foreign tax authority for a form, or apply by letter if they don’t have one.
- In other cases, you can usually claim Foreign Tax Credit Relief when you report your overseas income in your Self Assessment tax return. This offsets the foreign tax you’ve paid against the UK tax that would otherwise be due. However, Foreign Tax Credit Relief won’t necessarily fully balance out what you’ve paid because it’s simply intended to avoid you paying double tax. It doesn’t guarantee you never pay more than you would do in the UK. So, depending on the tax rates in the overseas country, and the specific details of its double tax agreement with the UK, you may not get the full amount of foreign tax you have paid back. For example, if your UK dividend tax rate is 8.75%, and you’ve paid foreign tax at 15%, you won’t be able to claim the amount above 8.75% back.
Income from overseas shares and other foreign investments is usually liable for UK tax in the same way as income from UK investments. With some investment taxes – such as capital gains tax – the situation is uncomplicated as there’s little risk of also having foreign tax applied. But if you receive an income from overseas investments – via dividends, for example – there’s a risk that the foreign tax authorities may apply tax before paying the dividend. In these cases, you may need to claim Foreign Tax Credit Relief on your Self Assessment tax return. The precise rules vary by country and can get a bit complex, so contact HMRC or consult a tax expert if you need help getting to grips with them.
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