Tax Credits: Foreign income
Foreign income for tax credits means income arising in the tax year from a source outside the UK. It does not comprise foreign employment income, foreign trading income - which are taken into account as employment income and trading income respectively - or foreign chargeable event gains which are taken into account as investment income. It does include profits from property overseas, overseas investment, pension and social security income.
The losses of an overseas property business which can be carried forward against future profits of that business under ITA 2007, sections 118 and 119 are also taken into account in calculating foreign income.
The tax rules allowing foreign income to be taxed only to the extent that it is remitted to the UK does not apply to tax credits – all of a tax credit claimant’s worldwide income must be taken into account, even if it is exempt under the terms of a double taxation treaty.
The following are disregarded:
- annuities or pensions payable to victims of National Socialist persecution under the laws of the Federal Republic of Germany, or any part of it, or Austria;
- interest on certain deposits belonging to victims of National Socialist persecution under a qualifying compensation scheme (ITTOIA 2005, section 756A);
- any pension, annuity, allowance or other payment provided in accordance with the provisions of the scheme established under the law of the Netherlands and known as Wet uitkeringen vervolgingsslachtoffers 1940-1945 (Netherlands Benefit Act for Victims of Persecution 1940-1945);
- deductions allowed from any pension or annuity under ITTOIA 2005, section 567(5), in particular (prior to 6 April 2017) the one-tenth deduction from a foreign pension allowed for income tax by ITTOIA 2005, sections 575(2), 613(3), 617 and 635(3). Note this deduction was abolished from 6 April 2017;
- any amount which is disregarded for income tax under ITEPA 2003, section 681, which gives relief on taxable foreign benefits where the corresponding UK benefit would be exempt, and the following provisions:
- ESC A10 (lump sums paid by overseas pension schemes);
- Section 751(1)(c) (interest on damages for personal injuries awarded by a foreign court);
- ESC A44 (education allowances payable to public officials of overseas territories); and
- Section 730 of ITTOIA (foreign maintenance payments).
Also disregarded is any unremittable foreign income but this is taken into account in the main calculation rather than in the foreign income part.
Last reviewed/updated 2 August 2021