1268 - Foreign tax credit relief against UK Income Tax

If your overseas income and gains have had foreign tax deducted it may be possible to obtain relief from double taxation. Foreign tax credit relief is normally the best way to obtain such relief, but if you do not want to or cannot claim it, you can deduct the foreign tax when calculating the amount of income and gains chargeable to UK tax. You cannot do both.

Foreign tax credit relief is not always available or available on the full amount of foreign tax you have paid. Relief is subject to the following rules:

• you must be a UK resident
• the income must arise in the foreign country and be properly chargeable under the foreign country's law
• the amount of foreign tax credit relief must not exceed the UK tax on the same item of income or gains
• where a Double Taxation Agreement exists between the UK and the other country the amount of foreign tax available for the relief is restricted to the minimum foreign tax payable under the terms of the Agreement. To check if the UK has entered into a double taxation agreement with the foreign territory you should follow the link DT Digest
• if no Double Taxation Agreement exists, or the Agreement does not cover that particular foreign tax, relief is only available if the tax corresponds to UK Income Tax or Capital Gains Tax.

If a Double Taxation Agreement is in force between the UK and the country or territory where your foreign income has been taxed, you must check what that agreement says and how its terms apply to you.

You cannot claim Foreign Tax Relief unless the Double Taxation Agreement gives the other country or territory the right to tax the income. Instead you must claim relief from the tax in that other country or territory.

Double Taxation Agreements

A Double Taxation Agreement is an arrangement between two territories which is designed to avoid the situation where same item of income or gains might be taxable in both places - for example, in both the UK and in the territory where the income or gain arose.

Tax deducted from dividends of the countries listed below is not eligible for foreign tax credit relief.

Antigua & Barbuda, Barbados, Belize, Brunei, Cyprus, Grenada, Guernsey, Isle of Man, Jamaica, Jersey, Kiribati, Luxembourg, Malaysia, Malawi, Malta, Montserrat, St Kitts & Nevis, Sierra Leone, Soloman Islands, Tuvalu.

Although the tax is not available for credit relief, it can be deducted in calculating the amount of the dividend chargeable to UK tax. For more information follow the link Get your tax right if you retire abroad or return to the UK.