In most cases, claiming tax relief will get back some of it, or the whole amount.
But, the way you claim it will depend on whether the foreign income got taxed already.
Note: Non-residents use a different method to claim reliefs of tax on UK income while abroad.
Already Paid Tax on Foreign Income
As a rule, you will claim Foreign Tax Credit Relief by reporting overseas income in your tax return. The amount of relief you get depends on the UK ‘double-taxation agreement‘ with the country where the money comes from.
You may still get some relief even if there is no such agreement in place. The exception would be if the foreign tax does not correspond to UK Income Tax or Capital Gains Tax.
Go ahead and contact HM Revenue and Customs (or get professional tax help) if you need help understanding double-taxation relief.
You may not always get the full amount of foreign tax paid out. For example, you will get less back if either of these apply:
- HMRC in the United Kingdom would have taxed the income at a lower rate.
- The double-taxation agreement in the overseas country sets a smaller amount of relief.
Note: The UK double-taxation agreement may require you to claim the tax back from the country where it came from. In this case, you would not be able to claim this relief.
Not Yet Paid Tax on the Foreign Income
What if you have not yet paid tax on your foreign income? You would have to apply for tax relief in the country the income is from if:
- The income is exempt from foreign tax but taxed in the United Kingdom (e.g. most pensions).
- The double-taxation agreement in that particular country requires it.
You can request a form from the foreign tax authority, or you can apply by letter if not. But, before applying, you must prove your eligibility for tax relief by one of these methods:
- Filling in the form and then sending it to HM Revenue and Customs. They will then confirm your residence status and return the form back to you.
- Obtaining a UK certificate of residence and include it if you apply by letter.
Note: Once you have it, send the proof along with the form or letter to the relevant foreign tax authority.
Taxed Twice: Capital Gains Tax
As a rule you will pay tax in the country where you are resident. Thus, you would be exempt from tax in the country where you make the capital gain. In most cases you do not need to make a claim.
Note: You must pay Capital Gains Tax on UK residential property even as non-UK resident.
Claiming the Relief
Different rules apply if the gain comes from an asset that either:
- Cannot get taken out of the country (e.g. a house or land).
- You are using it for business purposes in that country.
That means you would need to pay the taxes in both countries and then get the relief from the United Kingdom.
Taxed Twice: Dual Residents
It is possible to be resident in the United Kingdom and another country. Thus, you must check the residence rules of the other country and when their tax year begins and ends.
Note: Contact HMRC for guidance on claiming double-taxation relief as a dual resident.
ALSO IN THIS SECTION
Tax on Foreign Income: Information explaining the rules of UK taxation on money earned abroad.
Residence Status and Tax: How your status as a resident affects your liabilities for UK taxation.
Non-domiciled Resident: Check the tax rules for a UK resident with a ‘domicile’ outside the UK.
Paying Tax on Foreign Income: Payment rules for a UK resident with foreign income or capital gains.
Foreign Students: The rules for paying tax on foreign income while studying in the United Kingdom.