“My client, who is a UK resident and UK domiciled has received income from abroad from which tax has been withheld. Do I simply return the income on the tax return and claim relief for the foreign tax deducted?”
It is not as straightforward as that. The relief available for Double Taxation is governed by Taxation (International and Other Provisions) Act 2010 (TIOPA 2010). Although s18 TIOPA 2010 confirms double taxation relief is available, the quantum of the relief is subject to s33 which requires that two actions are taken before any claim is considered valid.
There is a requirement to ensure that the deduction is minimised under the domestic legislation of the country concerned. This may, of course, require the input of a specialist in the domestic law of that country.
You must also consider the terms of any Double Tax Treaty between the UK and the territory concerned. Any action required to minimise the overseas exposure under the Treaty must be taken. The treatment of any particular source of income will be detailed in the Treaty or included in a general clause.
This action may require claims being made in the overseas territory to reclaim non-UK tax which can be reduced under the domestic tax law of the other jurisdiction, or which exceeds the amount due under the Treaty.
Always bear in mind that the Treaty will outline which country is entitled to the tax. If a country outside of the UK is not entitled to tax, or to a limited (treaty rate) tax imposition, then this limits the amount available for relief in the UK.
In addition to the rule in s33 TIOPA 2010, the relief cannot exceed the UK tax due on the income – the excess cannot be relieved against other income, nor can it be carried forward – s36 TIOPA 2010.
It should be noted that HMRC do police double tax credit claims quite closely and an invalid claim will give rise to an enquiry.
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