Rules, Reliefs, and How to Avoid Paying Twice

In the UK, double taxation occurs when the same income is taxed in two different countries. The UK has Double Taxation Agreements (DTAs) with many countries to prevent this. Here’s how it works:

Key Rules for Double Taxation in the UK:

1. Tax Residency Matters
   • If you’re a UK tax resident, you’re generally taxed on worldwide income.
   • If you’re a UK non-resident, you’re only taxed on UK-sourced income.
2. Double Taxation Relief (DTR) Options
   If you’ve already paid tax on foreign income in another country, the UK offers three ways to avoid double taxation:
   • Tax Exemption – Some income may be completely exempt under a DTA.
   • Tax Credit Relief – You can offset foreign tax paid against UK tax on the same income.
   • Tax Deduction Relief – You deduct the foreign tax from taxable income instead of getting a direct credit.
3. UK’s Double Taxation Agreements (DTAs)
   • The UK has treaties with over 130 countries.
   • These agreements dictate which country has taxing rights over different types of income (e.g., employment, business profits, pensions).
4. Foreign Tax Credit (FTC) Limit
   • The foreign tax credit can’t exceed the UK tax payable on that income.
5. Remittance Basis for Non-Doms
   • If you’re UK-resident but non-domiciled, you can opt for the remittance basis, meaning you only pay UK tax on foreign income when it is brought (remitted) to the UK.
6. Special Cases: Dividends, Pensions & Property
   • Some types of income (e.g., pensions) have specific rules under DTAs.
   • Overseas property rental income is usually taxed in the country where the property is located but may still be reportable in the UK.