UK Tax on Overseas Savings Interest: HMRC Letters Explained

Earlier this month I had a Teams call with a Kiwi PA working at a private bank in the City who was fairly convinced she was about to go to prison.

She'd had a letter from HMRC mentioning "overseas income" and a number in the thousands, and her first thought was that it was a scam. Her second thought, once she'd rung HMRC and confirmed it wasn't, was considerably worse.

She's not going to prison. Almost nobody in this position is. But the letter is real, the tax office does mean it, and if something like this has landed on your doormat, or more likely your inbox, about interest earned on a New Zealand or Australian bank account, this one's for you.

Let's call her Trish. She's lived in the UK since the mid-2000s, went home to New Zealand for about eighteen months in 2022, and came back to London in 2023. Like a lot of Kiwis, she'd kept a term deposit and a credit union account back home the whole time, and rather than bring the balance across when she returned to the UK, she left it exactly where it was: the exchange rate at the time made converting it back to sterling look like throwing money away, which is a fair call. Nobody told her it would also mean a UK tax bill on the interest.

Why These Letters Are Landing Now

Here's the bit that actually explains the uptick in these letters over the past few years. New Zealand banks, Australian banks, and for that matter banks in well over a hundred other countries now report account balances and interest paid directly to their local tax authority once a year, who passes that information on to HMRC automatically. It's called the Common Reporting Standard, and it runs quietly in the background with no input from you at all.

Back in 2007, or 2010, or even five years ago, HMRC simply didn't have this data sitting on file. Now they do, and the letters that used to be rare are becoming routine. If your registered UK address is on file with a New Zealand bank, and that bank has paid you interest, there's a reasonable chance HMRC already knows about it before you've thought to mention it.

Three Things This Letter Almost Certainly Isn't

Let's quickly address this because getting a letter like this can be a tad stressful.

1. It isn't a scam. It reads like one, blunt, official, a specific number attached to your name, which is exactly the shape of thing you've been trained to be suspicious of. It's genuine, and if you want to confirm it ring the number on the letter (first check it matches what you can find listed on gov.uk) and check. In our experience the HMRC are happy to explain what is going on, what income they are aware of, and for what tax years. It's not secret squirrel stuff (though the letter reads a bit like it), they'll openly tell you what the letter relates to.
2. It isn't an accusation. HMRC isn't claiming you did this deliberately. It's flagging a gap between what a bank reported and what your tax return said, and asking you to close it. You may not have done anything wrong, but more likely it was just an oversight on your part, I mean, no-one offers a UK Tax 101 course when arriving in the country.
3. It isn't a criminal matter. Prosecution is reserved for deliberate, large-scale evasion, hidden structures, false statements to investigators. Someone who paid tax at home and reasonably assumed that was the end of it is about as far from that as it's possible to be.

What It Usually Is

Eight times out of ten, it's this: a term deposit, a savings account, or a credit union balance back home that's been quietly earning interest for years, and nobody ever explained that once you become UK tax resident, that interest becomes reportable here too. I've said before that it would be genuinely useful if everyone landing at Heathrow got a ten-minute tax briefing on the way through customs. They don't. If you've lived your whole life in New Zealand, you've never had foreign income, because it's all just been income. The moment you move, that changes, and nobody hands you the memo.

This is common, not unusual. Plenty of Kiwis and Aussies in the UK keep money back home rather than moving it across: maybe they expect to end up back there eventually, maybe the exchange rate has been unkind for a while, maybe it just never seemed worth the hassle. All perfectly reasonable reasons. None of them make the interest exempt from UK tax once you're living here.

The Worldwide Income Rule, in Plain English

Once you're UK tax resident, HMRC taxes your worldwide income, not just what you earn here. New Zealand and Australian interest counts, wherever the account sits.

The good news is you don't get taxed twice on the same money. If New Zealand withheld tax on that interest at source, typically 10% for a non-resident, you get credit for that against your UK bill. You're only ever paying the difference between what New Zealand charged and what the UK would have charged.

For the 2026/27 tax year, the Personal Savings Allowance lets most UK taxpayers earn a certain amount of interest from savings without paying tax on it. Basic rate taxpayers can earn up to £1,000 of savings interest tax-free, while higher rate taxpayers have a £500 allowance. Additional rate taxpayers do not receive a Personal Savings Allowance, so any taxable savings interest they receive is subject to Income Tax.

Say you've got interest converting to roughly £8,000 sterling in a tax year, using HMRC's own published average exchange rate. New Zealand's withheld 10% at source, about £800. If you're a higher-rate taxpayer and your Personal Savings Allowance is so far un-used, the UK wants 40% of that £7,500, which is £3,000. Knock off the £800 NZ credit, and you owe roughly £2,200. If you're a basic-rate taxpayer with an un-used £1,000 Personal Savings Allowance, the same £8,000 lands you with a £600 UK tax bill.

What to Gather Before You Reply

1. Interest certificates or statements for each account, for each year in scope, showing the gross interest and any tax withheld.
2. The New Zealand or Australian tax already paid, so it can be credited against the UK bill rather than paid twice.
3. Your UK income for the same years (P60s, other bank interest), because that's what determines your tax band and how much of your Personal Savings Allowance is left for the foreign interest.
4. Your exact arrival and departure dates, if you've moved country during the period. Time spent non-resident can remove a whole year from scope, or shrink it, through split-year treatment.
5. HMRC's own letter, so you can see exactly what period and figure they're working from before you compare it to yours.
6. A UTR, if you don't already have one. Correcting a past year usually means registering for Self Assessment first.

Trish had already built most of this before her call with me, unprompted: a spreadsheet with a column per year, interest by account, tax paid, and UK income sitting alongside it. If you're the sort of person putting this together before your accountant even asks, you're already ahead of where most people in this situation start.

How a Disclosure Actually Works (and Why No Tax Can Mean No Penalty)

Once your figures are together, the correction usually goes through HMRC's Worldwide Disclosure Facility, the standard route for putting overseas income right. We handle enough of these now that it has become its own thing here: our disclosure service runs the whole process end to end, from the first calculation through to HMRC actually closing the case. What happens next depends on behaviour, not intent to deceive.

In my experience, genuinely not knowing about the worldwide income rule counts as careless, not deliberate, and that distinction matters a great deal to the penalty. For a year where a return was filed and the interest was simply left off, the penalty typically sits in a range of 15% to 30% of the extra tax owed, and it's often reduced toward the bottom of that range, sometimes suspended entirely, where someone's cooperated fully and can show it won't happen again. Where no return was filed at all for a year, it's a different regime with its own range, usually not eligible for suspension, but sometimes starting from a slightly lower percentage if HMRC found out reasonably quickly.

The point worth repeating on its own: penalties and interest are both calculated as a percentage of the tax actually owed. Not the letter's headline number. Not the gross interest. The tax owed, after the foreign tax credit, after the Personal Savings Allowance, after any exemption that applies has done its work. If your final figure shows little or nothing left to pay, there's very little or nothing left to charge a penalty on.

The Good News: Inheritance and KiwiSaver

Also here are two reassurances worth having on hand, because they come up a lot in these conversations, kind of related.

There's no estate or inheritance tax in New Zealand or Australia at all, and inheriting money or assets from parents back home isn't, on its own, a UK taxable event. Nothing to report, nothing to pay, on the inheritance itself. (UK inheritance tax has its own separate set of rules that can eventually apply to your own estate the longer you live here, which is a different and longer conversation, covered elsewhere on the blog if that's the bit keeping you up at night.)

And if you've still got a KiwiSaver or an Australian super account sitting untouched from before you left, leave it exactly where it is. So long as you don't access or sell it, it isn't taxable in the UK. It's only the day you actually touch it that the question becomes relevant (and if you can, do NOT touch it while UK tax resident, especially if you intend to return home eventually).

What to Do This Week with your Letter

1. Verify the letter is genuine by calling the number on it, or HMRC's general line via gov.uk, rather than any number or link in an email.
2. Pull together your own figures for each account and each year the letter references, using the checklist above.
3. Check your residence position for the earliest years in scope. If you spent time out of the UK, some years may be out of scope entirely.
4. Use HMRC's published average exchange rate for the tax year, not whatever rate your banking app shows you today.
5. Talk to someone (like us!) before you reply to HMRC, not after. The shape of the eventual disclosure is much easier to get right at the start than to unpick later. This is exactly what our disclosure service exists for, if you'd rather someone just took it off your hands.

None of this makes the letter fun to open. But the mechanics underneath it are almost dull: work out what you should have paid, credit what you've already paid at home, own the difference, and get on with your life. Trish's version of this will likely end with a bill measured in hundreds or low thousands of pounds, not the number that had her lying awake picturing a courtroom.

Summary

1. HMRC letters about overseas interest are driven by automatic data sharing (CRS) between tax authorities, not a targeted investigation into you specifically.
2. The letter is real, it isn't an accusation, and it is not a criminal matter for the situations this piece covers.
3. UK tax residents are taxed on worldwide income, but you get credit for tax already paid overseas, and some years or circumstances can fall under a small-amounts exemption below £2,000.
4. Gather your interest certificates, overseas tax paid, UK income, and travel dates before you reply.
5. Penalties and interest are calculated on the tax actually owed, not on the letter's headline figure, and genuine, cooperative, careless mistakes are treated very differently from deliberate evasion.
6. There's no New Zealand inheritance tax, and KiwiSaver or super left untouched isn't taxed in the UK.

Frequently Asked Questions

Is this letter actually from HMRC, or could it be a scam?

It's real. Verify it by calling the number on the letter or HMRC's general line via gov.uk rather than trusting a link or number from an email, but the underlying scenario, a UK tax bill on overseas interest you didn't know about, is genuine and increasingly common.

Do I need to report interest that New Zealand already taxed?

Yes, but you won't pay tax on it twice. The New Zealand tax withheld is credited against what the UK charges, so you're only paying the difference.

What if the interest is only a few hundred pounds a year?

There's a small-amounts exemption below £2,000 that can apply, depending on your domicile and residence history. Worth checking properly rather than assuming either way.

Will I actually be prosecuted?

Practically never, for a situation like this. HMRC saves that for deliberate, large-scale evasion, not for someone who paid tax at home and didn't know the UK rule existed.

Do I need someone in New Zealand to sort the local side too?

Usually not for straightforward bank interest, since New Zealand withholding tax is already dealt with at source. Where a genuine New Zealand filing question does come up, we work alongside a New Zealand specialist rather than guess at NZ rules ourselves.

What about my KiwiSaver or Australian super?

Leave it alone and it isn't taxable in the UK. It only becomes relevant the day you access or sell it.

What if I've got years and years of this going back further than I can remember?

Older years are often genuinely out of scope, whether through residence, the de minimis rule, or simply falling outside what HMRC can go back for on a careless (rather than deliberate) case. Worth having someone map the actual years in scope rather than assuming the worst about all of them, which is the kind of multi-year mapping our disclosure service does as standard.

If you've had a letter like this, or just have a nagging feeling you should check, get in touch with No Worries Accounting. We deal with exactly this scenario more than almost anything else that comes through the door, enough that it now has its own disclosure service built around it, and we can tell you fairly quickly what's actually owed, no obligation, no sales pitch (well, maybe a small sales pitch 🙂). Ongoing UK tax after that is handled through our personal tax return service, or sign up here if you're ready to get started.