Posted on: 2 February 2026
Introduction
A few months ago, a client got in touch after fifteen years of living in the UK. He and his wife still owned a rental property in Australia (had done the whole time) and had always assumed that because they paid tax on it in Australia, that was the end of the story.
It wasn’t.
He’d received one of those letters from HMRC. The ones that ask, politely but pointedly, whether you have any overseas income you might have forgotten to mention. The letter referenced “information received from overseas” and invited him to check his tax affairs were in order.
By the time we’d worked through the numbers, he owed UK tax, interest, and a penalty. Not a catastrophic amount, but more than he’d expected, and certainly more than he would have owed if he’d been reporting the income all along.
His situation is far from unusual. We see it regularly: Kiwis and Aussies who moved to the UK years ago, kept property or savings back home, and genuinely didn’t realise that income needed to be reported here as well. The tax was being paid overseas. Nothing felt hidden. But from HMRC’s perspective, it was never declared, and that’s a problem.
If any of this sounds familiar, this blog is for you. We’ll cover why these letters are going out, what actually needs to be reported, how the disclosure process works, and what you can realistically expect in terms of penalties and outcomes.
Why Is HMRC Sending These Letters?
HMRC doesn’t send these letters on a hunch. In almost every case, they’ve received information from overseas tax authorities through automatic data-sharing agreements.
The main mechanism is something called the Common Reporting Standard, or CRS. Under CRS, banks and financial institutions in over 100 countries, including New Zealand and Australia, automatically report account holder details to their local tax authority. That information is then passed on to the tax authority in the country where the account holder lives.
So if you’re UK tax resident and you have a bank account, term deposit, or investment account in New Zealand or Australia, there’s a strong chance HMRC already knows about it. They know your name, your address, your account balance, and how much interest you earned.
The same applies to rental income, though the trail is slightly different. If you’re filing tax returns in New Zealand or Australia that show rental income, and those returns list a UK address, the information can find its way to HMRC through treaty partner exchanges.
The letters themselves are often called “nudge letters” and they are HMRC’s way of saying “we think there might be something here, and we’re giving you a chance to sort it out voluntarily.” They’re not the same as a formal investigation, but they’re not something to ignore either.
What Counts as Foreign Income?
When HMRC asks about overseas income, they mean any income arising outside the UK that you received while you were UK tax resident. The list is broader than most people expect.
Rental income is the most common one we see. If you own a property in New Zealand or Australia and it’s rented out, that rental profit is taxable in the UK, even if it’s already been taxed overseas. The fact that you paid tax on it in Auckland or Sydney doesn’t remove your obligation to report it in London.
Bank interest is another frequent trigger. A term deposit quietly earning interest back home might seem like small change, but if it’s not declared, it’s technically non-compliant. HMRC’s data-sharing agreements mean they often know exactly how much you earned.
Dividends from overseas shares or funds count too. So does income from a family trust, a foreign pension, or a business you have an interest in back home.
The key point is this: as a UK tax resident, you’re taxed on your worldwide income. It doesn’t matter where the money sits or where the tax was paid. If you’re living in the UK, HMRC expects to see it on your return.
“But I Already Paid Tax on It”
This is the sentence we hear more than any other. And it makes complete sense, why would you owe tax twice on the same income?
The short answer is: you usually don’t. But you do still have to report it.
The UK has double taxation agreements with both New Zealand and Australia. These treaties are designed to prevent the same income being taxed twice. In most cases, you can claim a credit for the tax you paid overseas, which reduces or eliminates what you owe in the UK.
Here’s how it works in practice. Say you earn $10,000 in rental profit from a property in New Zealand, and you pay 30% tax on it there. When you report that income in the UK, you also claim a foreign tax credit for the $3,000 you already paid. If the UK tax on that income would have been 40%, you only pay the difference (10%) to HMRC.
If the overseas tax rate was higher than the UK rate, you might owe nothing extra at all. But you still need to declare the income and claim the credit. Skipping that step is what turns a compliant taxpayer into someone with an undisclosed liability.
There’s another wrinkle worth knowing about. UK tax rules don’t always match the rules in New Zealand or Australia. A property that shows a loss under Australian tax law might actually show a profit under UK rules, because some deductions, like mortgage interest on residential rentals, are treated differently here. So even if your property is “negatively geared” back home, you might still owe UK tax on it.
How Many Years Are We Talking About?
This is usually the second question people ask, right after “how much will it cost me?”
The answer depends on how HMRC views your behaviour, specifically, whether the failure to report was innocent, careless, or deliberate.
If you took reasonable care but made a genuine mistake, perhaps you received bad advice, or the rules genuinely weren’t clear, HMRC can typically only go back four years.
If you were careless, meaning you didn’t take reasonable steps to check your obligations, the window extends to six years. However, for offshore matters specifically, there’s an extended time limit that allows HMRC to go back twelve years, even if the behaviour wasn’t deliberate.
If the failure was deliberate, you knew you should have been reporting the income and chose not to, HMRC can assess up to twenty years of back taxes.
In practice, most of the Kiwis and Aussies we work with fall somewhere between “reasonable care” and “careless”. They weren’t hiding anything. They just didn’t realise the rules applied to them. HMRC does recognise that people who aren’t born in the UK often aren’t familiar with how the system works here. That context matters when it comes to penalties.
“…the service has been fabulous.”
Ah Mike, we think you’re pretty fabulous too!
The Worldwide Disclosure Facility
If you have overseas income that should have been reported but wasn’t, the standard route for putting things right is HMRC’s Worldwide Disclosure Facility, the WDF.
The WDF is an online process that allows you to come forward voluntarily, disclose what was missed, and settle the matter. It’s designed for exactly these situations: UK residents with unreported offshore income who want to get compliant.
How the process works:
The first step is notifying HMRC that you intend to make a disclosure. You do this through their Digital Disclosure Service. Once you’ve registered, HMRC will send you an acknowledgement letter with a unique reference number. That letter also starts a 90-day clock, you have three months from that point to prepare and submit your full disclosure.
During those 90 days, you need to gather records, calculate the tax that should have been paid for each year, work out the interest owed, and determine an appropriate penalty. Yes, you propose your own penalty, we’ll come back to that.
The disclosure itself includes a detailed breakdown of the income, the tax calculations, and a letter explaining the circumstances. You also need to declare the maximum value of your overseas assets at any point in the last five years. And critically, you’re expected to pay the full amount, tax, interest, and penalty when you submit.
Once HMRC receives the disclosure, they’ll review it. If everything checks out, they’ll confirm the matter is closed. If they have questions, there may be some back-and-forth before final settlement. The whole process, from notification to closure, typically takes a few months.
Penalties: What to Expect
Nobody likes talking about penalties, but understanding how they work can take some of the fear out of the process.
HMRC’s penalty regime for offshore income is based on behaviour. There are three categories:
Reasonable care – You made a genuine effort to get things right but still got it wrong. Perhaps you relied on advice that turned out to be incorrect, or the rules were genuinely unclear. In these cases, penalties can be reduced to zero.
Careless – You didn’t take reasonable steps to check your obligations. This is the most common category for expats who simply didn’t know foreign income needed to be declared. Penalties for careless behaviour range from 0% to 30% of the unpaid tax, depending on the quality of the disclosure.
Deliberate – You knew the income should have been reported and chose not to. Penalties here are significantly higher, potentially reaching 100% of the tax owed or more.
Within each category, the penalty can be reduced based on how cooperative you are. A voluntary, unprompted disclosure, where you come forward before HMRC contacts you, attracts the lowest penalties. A prompted disclosure, made after receiving a nudge letter, still qualifies for reductions, but not as generous.
The silver lining? If you come forward voluntarily and cooperate fully, HMRC will generally work with you to settle at the lower end of whatever range applies. They’re not trying to bankrupt people who made honest mistakes, they want the tax paid and the record corrected.
What If I Haven’t Received a Letter?
Some people reading this won’t have received a letter from HMRC. They’ll just have a quiet awareness that something probably isn’t right.
If that’s you, the best time to act is now.
A disclosure made before HMRC contacts you is treated as fully voluntary. That means lower penalties, more control over the process, and less stress. Once a letter arrives, or worse, once an investigation opens, your options narrow and the costs go up.
We regularly work with clients who come to us unprompted, having realised that their NZ or Australian income should have been declared years ago. In those cases, we can often negotiate penalties at the very bottom of the range, sometimes even zero for genuine mistakes.
The worst position to be in is knowing there’s a problem and hoping it goes away. HMRC’s data keeps improving, and the automatic exchanges mean they’re more likely to find out than they were five years ago. Coming forward on your own terms is almost always better than waiting.
Do I Need to File a UK Tax Return?
A question we get surprisingly often: “I’ve never filed a UK tax return because my employer handles my tax through PAYE. Do I need to start?”
If you have foreign income that needs to be reported, even a modest amount of bank interest or a small rental profit, the answer is almost certainly yes.
Having UK tax collected through PAYE doesn’t exempt you from Self Assessment if you have other income to declare. Foreign income specifically requires a Self Assessment return, because HMRC needs you to report it and claim any foreign tax credits.
For people who have never filed a return before, this can feel like a big step. It’s not as daunting as it sounds, and we help clients through it regularly. But it is something you need to get right going forward, not just for the disclosure years but for every year after.
Putting It Right
A letter from HMRC about overseas income isn’t the end of the world. In most cases, the amounts involved are manageable, the explanations are straightforward, and the process, while not exactly fun, is perfectly survivable.
What catches people out isn’t the complexity of the rules. It’s the assumption that paying tax overseas was enough, or that a rental property in Auckland doesn’t have anything to do with a tax return in London. Those assumptions are understandable, but they’re wrong.
The good news is that the system is designed to let people correct their position. The Worldwide Disclosure Facility exists for exactly this purpose, and HMRC’s penalty regime rewards those who come forward voluntarily and cooperate fully.
At No Worries Accounting, we help Kiwis and Aussies in the UK navigate exactly these situations. Whether you’ve received a letter, or you’re sitting on income you suspect should have been declared, we can help you work out what’s needed, prepare the disclosure, and get the matter settled with as little stress as possible.
You don’t have to figure this out on your own. Get in touch, and we’ll help you work out where you stand.