Foreign tax relief

By Tolley

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

  • Foreign tax relief
  • Minimisation of foreign tax
  • Treaty relief
  • Unilateral relief
  • Foreign tax as a deduction from income or gains
  • Exemption from foreign tax
  • Making a claim for foreign tax relief
  • Mechanism of foreign tax relief

Income and gains may betaxable in more than one country. The UK has three ways of ensuring that the individual does not bear a double burden:

  • 1)treaty tax relief may reduce or eliminate the double tax (TIOPA 2010, ss 2, 18)
  • 2)if there is no treaty, the individual can claim ‘unilateral’ relief by deducting the foreign tax from his UK tax (TIOPA 2010, ss 8, 18)
  • 3)he can also deduct the foreign tax as an expense from his income (known as relief by deduction), although this is generally less efficient (TIOPA 2010, ss 112–113)

This guidance note looks at these three options in turn, and then considers how the reliefs should beused efficiently for income tax and capital gains tax (CGT) and how they should bereported for Self Assessment. It does not cover remittance basis users. For this, see Simon’s Taxes E5.318 (subscription sensitive).

HMRC guidance on a country by country basis is given in DT2140PP.

Minimisation of foreign tax

Before claiming foreign tax credits, you should note that the individual can only make a claim if he has taken all reasonable steps to have his foreign liability reduced to a minimum.

This includes claiming, or securing the deduction of, all allowances, reductions, reliefs and deductions which he might have reasonably expected to have claimed or secured if no foreign tax relief claim was open to him.

TIOPA 2010, s 33

Examples of such reliefs might bepersonal allowances in the overseas country, deductions for expenses, etc.

Treaty relief

Next, you should consider the provisions of the relevant tax treaty. There is a list of current UK treaties in force on the GOV.UK website . You may

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