Partnership foreign income and tax paid

By Tolley
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The following Personal Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Partnership foreign income and tax paid
  • Introduction
  • The starting point
  • Treaty relief
  • Refunds
  • Unilateral relief
  • Relief by deduction
  • Overseas investment income
  • Overseas property income
  • Change in a partner’s residence

Introduction

This guidance note outlines the rules which apply when a partner in a UK partnership is allocated overseas income or profits.

For a discussion of the treatment of income with a UK source, see the Partnership profit allocation, Taxed income of a partnership and Untaxed income of a partnership guidance notes. Special rules apply to those partners who access the remittance basis, see the Remittance basis ― overview guidance note.

There are many different sources of overseas income and profits, and the provisions can be complex. This guidance note is only a summary of the rules.

The taxation of UK resident partners in a partnership controlled overseas is outside the scope of this guidance note. Some of the issues are covered in INTM163130. Some guidance is also provided by HMRC Helpsheet HS380 .

The starting point

UK residents are taxable on their worldwide income. This includes:

  • trading income (ITTOIA 2005, s 6)
  • property income (ITTOIA 2005, s 269)
  • savings and investment income (ITTOIA 2005, s 368)
  • miscellaneous income (ITTOIA 2005, s 577)

Since partnerships (including LLPs) are transparent for tax purposes, UK resident partners are taxable on their share of the partnership’s overseas income and profits allocated in accordance with the profit sharing agreement.

Generally: ITTOIA 2005, s 848; LLPs: ITTOIA 2005, s 863(1)(a)

For example, if a partnership with three members agrees to share profits in the ratio 5:3:2 and has taxable profits from UK and overseas sources of £100,000 for the year. The partners would be allocated total profits of £50,000, £30,000 and £20,000, respectively. Each would then be required to complete and file his own Tax Return on this basis, making any claims and elections that may be

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