United Kingdom

Individual - Foreign tax relief and tax treaties

Last reviewed - 27 July 2022

Foreign tax relief

UK residents are usually able to claim a credit for foreign taxes suffered on overseas income or gains that are taxable in the United Kingdom. This is either under an applicable tax treaty or UK unilateral relief. In some circumstances, the taxpayer can elect for the foreign tax to be deducted from the taxable amount in the United Kingdom as an alternative to having a credit for the foreign tax suffered.

The rules relating to non-doms changed from 6 April 2017. Please see The remittance basis of taxation in the Taxes on personal income  section for a summary of the changes.

Currently, non-UK domiciled taxpayers who claim the remittance basis of taxation but who have been resident in the United Kingdom in at least seven out of the previous nine tax years have to pay GBP 30,000 per tax year in order to claim the remittance basis. The remittance basis charge increases to GBP 60,000 for non-domiciled individuals who have been in the United Kingdom for at least 12 of the previous 14 tax years.

The remittance basis is not available once the individual has been UK resident for 15 out of the previous 20 tax years.

The remittance basis charge is in addition to the tax liability arising on the income and gains remitted to the United Kingdom. As the GBP 30,000/60,000 is a tax (on either income or capital depending on the funds nominated), it should be accepted as income tax or CGT by other jurisdictions for the purposes of tax treaties. In respect of United States (US) citizens, the US Internal Revenue Service (IRS) has confirmed that the remittance basis charge is a creditable foreign tax.

Nominating income or gains in relation to the GBP 30,000/60,000 remittance basis charge is a complex specialist area, and further advice should be sought where necessary.

UK/Swiss agreement

HMRC has an agreement with the Swiss tax authorities. The agreement allows close co-operation between the United Kingdom and Switzerland, and there is a significant exchange of information between the two countries. The agreement provides a historic levy on Swiss funds held by UK resident individuals of up to 34% of the balance in an account as of 31 December 2010 or 31 December 2012. UK residents with Swiss accounts may also be subject to WHT of up to 48% on their accounts. With respect to inheritance tax, Swiss paying agents are obligated to withhold 40% tax or make a disclosure when a relevant person dies, along with other measures.

All UK residents with Swiss bank accounts (both UK domiciled and non-UK domiciled) should obtain professional advice.

Tax treaties

The United Kingdom has one of the largest networks of tax treaties, with more than 100 countries. These conventions aim to eliminate double taxation of income or gains arising in one territory and paid to residents of another territory. They work by dividing the tax rights each country claims by its domestic laws over the same income and gains. Most treaties are based on the OECD Model Taxation Convention.

The OECD's Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (BEPS) (the 'Multilateral Instrument' or 'MLI') entered into force in the United Kingdom on 1 October 2018 and will have a fundamental impact on how taxpayers access double tax treaties (DTTs) to which it applies. It began to apply (e.g. in relation to WHT) from 1 January 2019 to the UK’s DTTs with those territories that have also ratified before 1 October 2018, where those are covered tax agreements. The precise dates on which the MLI will begin to have effect for other purposes, or in relation to other DTTs, will depend upon when other treaty partners submit their instruments of ratification with the OECD and what options and reservations they have submitted.

Tax information exchange agreements (TIEAs)

TIEAs have been entered into to promote international co-operation in tax matters through exchange of information.

The United Kingdom has entered into reciprocal agreements relating to the EU Directive on taxation of savings income in the form of interest payments with a number of countries. The United Kingdom has also entered into a number of non-reciprocal agreements relating to the EU Directive on taxation of savings income in the form of interest payments.

The United Kingdom has made a number of bilateral agreements for cooperation in tax matters through exchange of information.

Social security agreements

The United Kingdom has treaties with many countries with regard to social security. Individuals coming from countries with which the United Kingdom does not have a reciprocal arrangement may alternatively qualify for a 52-week exemption from UK social security if assigned to the United Kingdom by an overseas employer.