Self Assessment Help - Foreign Income

always_sunny

I thought it'd be straightforward, maybe it is and haven't got the hang of it yet.
I need to report foreign income through my self-assessment; there's a section, etc though everything needs to be reported in £... Do I use the Average for the Year on the HMRC website?

EdSwippet

Technically you should use the exchange rate that prevailed when you received each payment:

"... convert the income into UK pounds using the exchange rate at the time the income arose."

If there were only one or two this won't be hard, but if you had twelve payslips and say twelve foreign interest and/or dividend payments that would clearly be a lot more work, although if all the payments were equal and equally spaced across the year, using the average rate would get you more or less the same result.

Under normal circumstances, where exchange rates don't vary much, the average rate would probably do for all. Recently we haven't seen much 'normal', though. And sometimes using spot rates for each payment would work in your favour. For example, because GBP sunk heavily after the Brexit vote, using an average forex rate for 2016 would mean you would overpay tax for foreign payments received early in the year (and underpay for any received later).

always_sunny

I kept a tab of the FX just in case, the SA doesn't really provide much help on the page!

Now I have to figure out the tax relief option

Cook_County

Are you subject to UK tax on the arising or the remittance basis?

always_sunny

Cook_County wrote: »

Are you subject to UK tax on the arising or the remittance basis?

I am subject to UK tax as I am resident here and domiciled here. Though my foreign income (rent) is also taxed as source and there's a double taxation treaty

The question "Do you wish to claim foreign tax credit relief" Yes/No is not so clear.

[Deleted User]

always_sunny wrote: »

I am subject to UK tax as I am resident here and domiciled here. Though my foreign income (rent) is also taxed as source and there's a double taxation treaty

The question "Do you wish to claim foreign tax credit relief" Yes/No is not so clear.

I imagine that you do and the answer would be 'yes' therefore. I have had a problem with the HMRC calculation (because it's wrong!) on the two cases that I have and have used the manual option. Remember that your tax credit relief is the lower of foreign tax paid and the UK tax ON THAT INCOME alone

always_sunny

[Deleted User] wrote:

I imagine that you do and the answer would be 'yes' therefore. I have had a problem with the HMRC calculation (because it's wrong!) on the two cases that I have and have used the manual option. Remember that your tax credit relief is the lower of foreign tax paid and the UK tax ON THAT INCOME alone

I do? I was looking for explanations that clearly define it...

essentially I receive the income abroad and I pay (and have paid already) tax on it.
The SA already deducts it leaving with the net-net (gross minus tax paid abroad) amount.
The tax paid abroad is lower than it'd be in the UK, therefore I thought I'd need to pay some extra tax here?

EdSwippet

always_sunny wrote: »

... The tax paid abroad is lower than it'd be in the UK, therefore I thought I'd need to pay some extra tax here?

From what you have said, you might. Your credit relief is limited to UK tax due, but if less then you get to pay the difference.

Example: Your tenants pay (the foreign currency equivalent of) £100 in rent, the country in which the rental is taxes this at 15%, and you receive £85 net of foreign tax. You are a basic rate taxpayer. On your tax return(*) you enter the gross £100, and this adds £20 to your UK tax liability. But you also enter £15 as foreign tax credit, which reduces your UK tax on this £100 to £5. (If foreign tax had instead been 30% your foreign tax credit would be limited to your £20 UK liability.)

(*) Both the HMRC forms and the online self assessment are a mess in this area. Getting them to produce the outcome shown above is often not straightforward. As purdyoaten2 notes above, it can be easier to just do this manually rather than try to use HMRC's obfuscated methods.

csgohan4

ensure you keep either forex screen shots of the spot rates or average yearly when you exchange, sometimes the HMRC are a bit funny no how and when you calculate the income.

always_sunny

EdSwippet wrote: »

From what you have said, you might. Your credit relief is limited to UK tax due, but if less then you get to pay the difference.

Example: Your tenants pay (the foreign currency equivalent of) £100 in rent, the country in which the rental is taxes this at 15%, and you receive £85 net of foreign tax. You are a basic rate taxpayer. On your tax return(*) you enter the gross £100, and this adds £20 to your UK tax liability. But you also enter £15 as foreign tax credit, which reduces your UK tax on this £100 to £5. (If foreign tax had instead been 30% your foreign tax credit would be limited to your £20 UK liability.)

(*) Both the HMRC forms and the online self assessment are a mess in this area. Getting them to produce the outcome shown above is often not straightforward. As purdyoaten2 notes above, it can be easier to just do this manually rather than try to use HMRC's obfuscated methods.

Say my total rent income for the year is £5000, 1 property and total expenses (receipts) is £1000.
My net profit is £4000 (£5000-£1000=£4000).

Screen 1 is done!

Then there's wear and tear on Screen 2, say £500.
My Adjusted Profit is £3500 (£4000-£500=£3500)

Screen 2 is done!

Now I select the country (one with double tax treaty) and foreign tax taken or paid is £1000.
Taxable amount is the same as in Screen 2, £3500. Basically I am saying, of this net profit (£3500) I have already paid £1000. So because of that, I wish to claim tax credit relief.
I have no UK Tax taken off (as yet on this income)

Isn't the system then clever enough to calculate (together with my main income) my total taxable amount and total tax paid?

[Deleted User]

It appears not, at least from my recent experience. Your tax credit relief claim is £1000 if your UK tax liability ON THE £3500 is equal to or more than this. If you are a basic rate tax payer the UK tax due would be £700 and this would be your claim. The remaining £300 is 'lost'.