Unremittable income: what UK taxpayers need to know for Self-Assessment

UK taxpayers with foreign income may sometimes find themselves unable to bring that income into the UK due to circumstances beyond their control, such as foreign exchange controls or government restrictions. In these cases, the UK tax system provides specific relief under the “unremittable income” rules. But what is unremittable income, how does the relief work, and what steps do you need to take when completing your self-assessment tax return?

What is unremittable income?

Unremittable income is foreign income that a UK taxpayer cannot transfer to the UK because of:

• The laws of the country where the income arises (such as exchange controls),
• Executive action by that country’s government, or
• The impossibility of obtaining foreign currency that could be transferred to the UK.

To qualify as unremittable, the taxpayer must also not have the income outside that country in a form (such as sterling or another transferable currency) that could be brought to the UK.

Who can claim relief?

These rules apply to individuals taxed on the “arising basis” (i.e., on worldwide income as it arises, not just when it is brought to the UK). If you are taxed on the remittance basis, you are generally only taxed on foreign income actually brought to the UK, so these rules are less relevant—though there are some exceptions for those with small amounts of unremitted income.

How does the relief work?

If you have income that meets the definition of unremittable, you can claim relief so that the income is not taxed in the year it arises. Instead, it will only be taxed if and when it becomes possible to remit it to the UK. The key steps are:

1. Declare the income: you must still declare the unremittable income on your self-assessment tax return (including a note of any foreign tax suffered).
2. Make a claim: you must make a formal claim for relief as part of your tax return. The claim must be made by the first anniversary of the normal filing date for the relevant tax year.
3. Monitor the situation: each year, you must check whether the income remains unremittable. If the restrictions are lifted and you can bring the income to the UK, you must declare it in that year’s tax return, and it will be taxed then.
4. Exchange rate: when the income becomes remittable, it is taxed at the exchange rate prevailing on the date it becomes possible to remit.

Important points to note

• The relief is not available if you have received an insurance payment from the Export Credits Guarantee Department (ECGD) in respect of the unremittable income.
• The rules do not apply to overseas debts of a UK trade that cannot be settled due to currency restrictions.
• If you do not make a claim, the income will be taxed in the year it arises, valued at the market rate for the currency in the UK (or the official rate if there is no market).
• If the income becomes remittable in a later year, it is taxed in that year, even if the original source of the income no longer exists.

Example

Suppose you are a UK resident with a bank account in a country that imposes strict exchange controls, preventing you from transferring interest income to the UK. You can claim relief for this unremittable income on your Self-Assessment tax return. If, in a later year, the controls are lifted, you must declare the previously unremittable income in that year’s return, using the exchange rate at the time it becomes remittable.

Summary checklist for Self-Assessment

• Identify any foreign income that cannot be remitted due to legal or practical restrictions.
• Declare the income on your self-assessment tax return.
• Make a claim for relief within the required time limit.
• Review the situation annually and declare the income in the year it becomes remittable.
• Ensure you have not received an ECGD insurance payment for the income.

Conclusion

The unremittable income rules are designed to ensure that UK taxpayers are not unfairly taxed on foreign income they cannot access. However, strict conditions apply, and it is essential to follow the correct procedures when completing your self-assessment tax return. If you are unsure whether your foreign income qualifies as unremittable or need help with your claim, seek professional advice to ensure you remain compliant and make the most of the relief available.

Reach out to your usual HaysMac contact, or Katharine Arthur at Karthur@haysmac.com for more.