Double Tax Relief (Foreign tax credit relief)

If you are UK resident and are receiving income from another country, paying tax on this income overseas as well as in the UK, then you should be able to obtain double tax relief depending on the type of income you are receiving.

Where a person is required to pay tax in both the UK and abroad, double tax relief can reduce the UK tax liability by up to the value of tax paid overseas. So, it can be a beneficial concept to familiarise yourself with.

Double tax relief may be available through a double tax treaty. Alternatively, it may be available through statute where there is no double tax treaty with the country concerned.

Treaty Impact and Practical Implications

Where there is a double tax treaty in place, this could however affect the amount and mechanism of the relief.

For example, the amount of double tax relief available in the UK will be limited to the maximum tax rates set in the double tax treaty. This might not equate to the rate of tax actually suffered.

We see this point come into play quite regularly with dividend income. The Americans, for example, will by standard apply a 30% tax deduction, whereas the agreed treaty rate is 15%.

This means many individuals who are tax resident in the UK are limited to claiming double tax relief on 15%. They would then need to contact the country where the tax was suffered to reclaim any overpaid amounts, if applicable.

Naturally, this is a complicated area where nuances need to be factored in. Your particular circumstances should always be taken into consideration when it comes to tax. As such, we are always happy to provide further assistance if required. As expert tax advisers, we are well versed in the many complexities and are always poised to help. So, please do get in touch if you would like to learn more!

As always, you can call us on 01243 782 423, or email us from our contact page to see how we can help!

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