how to claim double taxation relief in the UK; london accountant

Double Taxation: How to Claim Relief for Foreign Income

Double Taxation: How to Claim Relief for Foreign Income

If you earn income from a foreign source, you may find yourself in a situation where you’re taxed twice — both by the country where your income originates and by the UK. However, the good news is that you can often claim tax relief to recover some or all of the additional tax you’ve paid. In this blog post, we’ll explore the process of claiming relief for foreign income in an easy-to-understand manner.

This post explores double taxation for UK residents. There is a separate process for UK non-residents who are being taxed on their UK income by the foreign country in which they reside.

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Claiming Relief Before Being Taxed on Foreign Income

In some cases, you may need to apply for tax relief in the country where your income is generated before it is taxed. This is typically applicable when:

Your income is exempt from foreign tax but is taxed in the UK (e.g., most pensions).
It is required by the double-taxation agreement between the two countries.

To initiate the process, you should contact the foreign tax authority and request the appropriate form. If there is no form available, you can apply by letter. Before applying, you must prove your eligibility for tax relief. You can do this by either completing the form and sending it to HM Revenue and Customs (HMRC), who will verify your residency status and return the form to you, or by including a UK certificate of residence if you are applying by letter. Once you have obtained proof of eligibility, you should send the form or letter to the foreign tax authority.

Claiming Relief After Paying Tax on Foreign Income

If you have already paid tax on your foreign income, you can generally claim Foreign Tax Credit Relief when reporting your overseas income in your tax return. The amount of relief you receive depends on the UK’s double-taxation agreement with the country where your income originates.

Even if there is no specific agreement in place, you will usually still be eligible for relief unless the foreign tax does not correspond to UK Income Tax or Capital Gains Tax. If you’re unsure about whether you qualify for relief or need assistance with double-taxation relief, don’t hesitate to reach out to us at CIGMA Accounting for assistance.

Determining the Amount of double taxation Relief

It’s important to note that the full amount of foreign tax paid may not be refunded to you. The relief you receive will be reduced if:

The double-taxation agreement specifies a lower relief amount.
The income would have been taxed at a lower rate in the UK.

HMRC provides guidance on how Foreign Tax Credit Relief is calculated, including special rules for interest and dividends, which can be found in their ‘Foreign notes’ section. However, it’s essential to remember that you cannot claim this relief if the UK’s double-taxation agreement requires you to claim tax back from the country where your income originates.

Capital Gains Tax

When it comes to Capital Gains Tax, typically, you’ll pay tax in the country where you are a resident and be exempt from tax in the country where the capital gain occurs. Usually, you won’t need to make a claim for relief.

However, there is an exception for UK residential property. Regardless of your residency status, you are required to pay Capital Gains Tax on any gains made from UK residential property.

When to Claim Capital Gains Relief

The rules for claiming relief vary depending on the nature of the asset generating the gain. If the asset cannot be taken out of the country, such as land or a house, or if it is used for business purposes in that country, you’ll need to pay tax in both countries and seek relief from the UK.

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Understanding double tax treaties in the UK

07/06/202307/06/2023 by , posted in Blogs, Corporation Tax, Income Tax, Overseas Corporate tax issues, Overseas personal tax issues, Overseas tax issues

Understanding double tax treaties in the UK

Double tax treaties, also known as double taxation agreements, play a vital role in facilitating international trade and investment by preventing double taxation. These agreements are designed to provide relief and clarity to taxpayers operating across borders. In this blog post, we will explore the concept of double tax treaties, examine their impact on taxpayers, and shed light on the countries with which the United Kingdom (UK) has such treaties.

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What are Double Tax Treaties?

Double tax treaties, also known as tax conventions or tax treaties, are agreements established between two or more countries to resolve potential conflicts regarding taxation. These treaties aim to eliminate or reduce instances of double taxation, where the same income is taxed by more than one jurisdiction. By doing so, they help avoid situations where taxpayers could be subjected to excessive tax burdens, fostering a favourable environment for cross-border trade and investments.

Double tax treaties typically address several key aspects, including:

Tax Residency
Determining an individual or entity’s tax residency status is essential to determine which country has the primary right to tax their income.

Income Categories
The treaties define the various types of income, such as dividends, interest, royalties, and capital gains, and allocate taxing rights between the countries involved.

Avoidance of Double Taxation
The agreements specify mechanisms to avoid double taxation, such as granting exemptions, providing tax credits, or applying a reduced tax rate.

Exchange of Information
Double tax treaties often include provisions for the exchange of information between tax authorities to prevent tax evasion and ensure compliance.

Which Taxpayers are Affected by double taxation agreements?

Double tax treaties impact different categories of taxpayers engaging in international activities. These include:

Individuals
Individuals who are tax residents of one country but earn income in another are directly affected by double tax treaties. These can include employees working abroad, students receiving scholarships, or retirees receiving pensions from foreign sources.

Businesses
Multinational corporations, small and medium-sized enterprises (SMEs), and sole proprietors engaged in cross-border trade or investment activities are significantly affected. Double tax treaties provide clarity on the taxation of business profits, dividends, interest, and royalties, avoiding potential tax burdens.

Investors
Individuals or entities investing in foreign countries may be subject to various taxes, including capital gains tax. Double tax treaties can help mitigate the impact of such taxes by providing relief or reducing tax rates.

Which countries have Double Tax Treaties with the UK?

The UK has an extensive network of double tax treaties with numerous countries worldwide. These treaties aim to promote international trade and investment by facilitating fair and efficient tax treatment. Here are some notable countries with which the UK has double tax treaties:

United States
The UK US double tax treaty helps prevent double taxation on income and capital gains for individuals and businesses operating across these two countries.

Germany
The double tax treaty between the UK and Germany addresses various aspects of taxation, including business profits, dividends, interest, and royalties, benefiting taxpayers from both nations.

France
The double tax treaty between the Uk and France focusses on avoiding double taxation, determining tax residency, and ensuring effective exchange of information, benefiting taxpayers in both countries.

China
The UK and China have a double tax treaty that helps avoid double taxation and provides relief for individuals and businesses earning income in both jurisdictions.

These examples represent only a fraction of the countries with which the UK has double tax treaties. The UK’s extensive network of such agreements enhances certainty, reduces barriers, and encourages cross-border economic activities.

How to claim tax relief if you are taxed twice

To claim relief on foreign income and avoid being taxed twice, there are a few important steps to follow. If you haven’t been taxed yet, you should apply for tax relief in the country where your income originates by contacting the foreign tax authority and submitting the necessary form or letter. If you’ve already paid tax on your foreign income, you can claim Foreign Tax Credit Relief when reporting your overseas income in your UK tax return.

The amount of relief you receive depends on the double-taxation agreement between the UK and the country where your income is from. Make sure to consult HM Revenue and Customs (HMRC) or seek professional tax advice if you have any uncertainties or need assistance with double-taxation relief.

You can also read our full post on claiming relief for double taxation.

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New transparency regulation for UK overseas property owners

New transparency regulation for overseas property owners

20/02/202324/03/2023 by , posted in Blogs, HMRC notices, Latest News, Overseas Corporate tax issues

The Register of Overseas Entities came into force in the UK on 1 August 2022. The register is held by Companies House and requires overseas entities that own land or property in the UK to declare their beneficial owners and / or managing officers.

This compliments the current HMRC Worldwide Disclosure Facility (WDF), aimed at preventing offshore tax evation. You can learn what your business needs to disclose here.

Why implement this new register?

Information on the register will be available to HMRC and will be used to help identify offshore tax non-compliance of:

overseas legal entities
overseas legal arrangements
beneficial owners (including settlors, beneficiaries etc).

Which property sales does this affect?

Overseas entities that already owned UK property were required to register by 31 January 2023. This applies to overseas entities who bought property or land on or after 1 January 1999 in England and Wales, 8 December 2014 in Scotland, and on or after 1 August 2022 in Northern Ireland.

Entities that disposed of property or land after 28 February 2022 will also need to give details of those disposals.

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Registering as an overseas company

19/01/202306/03/2023 by cigma, posted in Overseas Corporate tax issues

An overseas company must register with Companies House if they want to set up a place of business in the UK. This would mean that the overseas company has some sort of physical presence in the UK through which it carries on business.

If an overseas company does not have a physical presence in the UK, then they are not usually required to register with Companies House. For example, an independent agent who conducts business on behalf of an overseas company is not seen as the overseas company having a physical presence in the UK, neither is an occasional location such as a hotel where a director of an overseas company may conduct business during periodic visits to the UK.

If the overseas company is required to register, then they must submit a completed OS IN01 form and pay the standard registration fee of £20 to Companies House. If the company is registering its first UK establishment, it must also send Companies House a certified copy of the company’s constitutional documents and a copy of the company’s latest set of accounts (with a certified translation in English if prepared in another language).

The overseas company can be registered using its corporate name (its name under the law of the country of incorporation), or an alternative name under which it proposes to carry-on business in the UK.

Source:Companies House| 16-01-2023

Category: Overseas Corporate tax issues