UK Taxation of Foreign Income: Navigating Double Tax Treaties

It is not as straightforward as that. The relief available for double taxation is governed by the Taxation (International and Other Provisions) Act 2010 (TIOPA 2010). Although section 18 TIOPA 2010 confirms double taxation relief is available, the quantum of the relief is subject to section 33, which requires that two actions be taken before any claim is considered valid.

Firstly, there is a requirement to ensure that the deduction is minimised under the domestic legislation of the country concerned. This may, of course, require the input of a specialist in the domestic law of that country.

Secondly, you must consider the terms of any Double Tax Treaty between the UK and the territory concerned. Any action required to minimise the overseas exposure under the treaty must be taken. The treatment of any source of income will be detailed in the treaty or included in a general clause.

If the UK does not have a treaty with the country concerned or the source is not included in the agreement, relief should be claimed as a tax reducer against the tax due on the income concerned on a unilateral basis. The following link gives more information on this point: INTM161030 – UK residents with foreign income or gains: double taxation relief: Unilateral relief – HMRC internal manual – GOV.UK

This action may require claims being made in the overseas territory to reclaim non-UK tax, which can be reduced under the domestic tax law of the other jurisdiction, or which exceeds the amount due under the treaty.

Always bear in mind that the treaty will outline which country is entitled to the tax. If a country outside of the UK is not entitled to tax, or to a limited (treaty rate) tax imposition, then this limits the amount available for relief in the UK.

In addition to the rule in s33 TIOPA 2010, the relief cannot exceed the UK tax due on the income (the excess cannot be relieved against other income, nor can it be carried forward – s36 TIOPA 2010).

We can help with the application of tax treaties. These are readily available by search on the Gov.UK website.

It should be noted that HMRC does police double tax credit claims quite closely, and an invalid claim will give rise to an inquiry.

John Riseborough
Tax Advisor

For more information, contact us at consultancy@vantagefeeprotect.com