Guidance

Relief for Foreign Tax Paid 2021 (HS263)

Updated 6 April 2024

If you’ve paid foreign tax on income received or capital gains made that are also taxable in the UK, you may be able to claim relief for the foreign tax paid.

This helpsheet will allow you to work out the relief you can claim. You may also need to fill in the foreign supplementary pages (SA106), to record the amount of income and gains on which foreign tax was paid and claim relief.

If you’re not a resident of the UK, the Isle of Man or the Channel Islands, you will not be entitled to relief against UK tax and should not be completing the foreign pages.

Relief from double taxation comes in three forms, depending on the circumstances.

Under the terms of a Double Taxation Agreement (DTA)

The notes to the foreign pages (SA106) explains DTAs. Essentially, if a DTA gives exclusive taxing rights to the UK, no foreign tax is payable and so there is no question of relief.

Likewise, if the DTA gives exclusive taxing rights to another country, no UK tax is payable and so no relief will be available. If a DTA applies to your circumstances in this way, you are encouraged to provide further details in the ‘any other information’ section of the SA100 (page TR7). Beyond this, you do not need to consider the guidance below.

Alternatively, a DTA may restrict the amount of foreign tax payable, which will affect the amount of relief you can claim. A summary of the DTAs the UK holds with other countries in relation to income can be found in the Digest of Double Taxation Treaties. More guidance by country is available in the Double Taxation Relief Manual.

Example 1

Chris receives £100 Spanish property income dividends with £20 foreign tax paid. The allowable rate for Spanish property income dividends is 15% (see page 32 of the Digest of Double Taxation Treaties), so the amount of foreign tax Chris can claim for is £15.The excess of £5 paid in Spain is not available for credit against the UK tax liability. Chris may be able to recover this amount from the Spanish Tax authorities.

If a DTA restricts the relief available (as in example 1) then the restricted amount should be included on the foreign supplementary pages (SA106).

Where the DTA does not prevent a source of income or capital gain being taxed in both countries or there is no DTA, then relief may be available using either of the 2 following methods outlined.

Relief by way of credit for foreign tax paid

For both income and capital gains, the same principles apply when claiming Foreign Tax Credit Relief (FTCR). The tax credit in the UK is the lower of the:

• foreign tax paid (or allowed by the DTA as in example 1) on the income or capital gain
• UK tax liability on the income or capital gain

That credit then reduces the UK tax liability to provide relief.

The UK tax liability on a specific amount of income or a capital gain is the difference between the UK tax due on your income or capital gains:

• plus the item on which foreign tax was incurred
• without the item on which foreign tax was incurred

The basic mechanics of calculating FTCR are shown in example 2:

Example 2 – Foreign Income

Zoë’s total income is £50,000, comprising self-employment income of £48,000 and £2,000 of foreign interest. The total UK tax due for 2020 to 2021 is £8,160.

She wants to claim FTCR on the foreign interest, as tax of £300 was paid on this item overseas. Zoë will need to record this income and the tax paid on page F2 of SA106.

Zoë’s income without the foreign interest is £48,000. The tax due on this amount would be £7,560. The UK tax due on the foreign interest is therefore £600 (£8,160 – £7,560). As this is greater than the foreign tax paid on the interest, the FTCR is £300, which Zoë needs to include in box 2 of form SA106. This is deducted from Zoë’s total UK liability for 2020 to 2021, leaving £7,860 due.

If you have more than one source of income or capital gains eligible for relief, a separate calculation needs to be performed for each item, rather than combining them all together.

Example 3 – Multiple Sources

Katy received 2 dividends: £1,000 from a company in country X (£200 foreign tax paid) and £5,000 from a company in country Y (£500 foreign tax paid).

When calculating FTCR, Katy needs to perform a separate calculation for each item, using the same method as in example 2. She should not perform one calculation using a dividend of £6,000, with £700 foreign tax paid. Likewise, if there were 2 capital gains, the same principles would apply.

When calculating FTCR, available reliefs or allowances can be allocated in the most favourable way, so as to maximise the relief.

With capital gains, the Annual Exempt Amount (AEA) and any capital losses should generally be set against UK gains in priority to maximise FTCR.

Example 4 – Foreign Capital Gain

Harry, a higher-rate taxpayer, sold 2 buy-to-let properties in 2020 to 2021: one in the UK for a gain of £26,000 and one overseas for a gain of £7,000. Foreign tax of £2,100 was paid on the latter disposal. He should record details of this foreign gain on page F6 of SA106.

His Annual Exempt Amount (£12,000) should be set against the UK gain, to maximise the FTCR claimed. This gives:

£14,000 (£26,000 – £12,000) at 28% (as the asset is residential property) = £3,920

£7,000 at 28% = £1,960 is the UK CGT due on the overseas property

As this is less than the foreign tax paid, Harry’s FTCR claim is £1,960, giving a final UK CGT liability of £3,920. This FTCR claim is recorded in boxes 38 and 39 on page F6 of SA106.

Deduction relief

This is an alternative to FTCR. Again, the same general principle applies for both income and gains. Instead of using a credit to reduce the tax liability, the foreign tax incurred can be used to reduce the foreign income or capital gains that are chargeable in the UK.

You can choose between FTCR or deduction relief, depending on which is most beneficial. Generally, deduction relief will only be preferable where there is no UK tax liability in the year, for example due to losses or the deferral of a capital gain.

Example 5 – Foreign Income

Gemma makes a trading loss of £19,000 in 2020 to 2021. Her other income is UK rental income of £8,000 and foreign interest of £9,000, on which tax of £900 was paid overseas.

Gemma has no UK tax liability as her trading losses cover the other sources of income. This means that no FTCR is available.

Claiming deduction relief reduces the foreign interest of £9,000 to £8,100, acknowledging the foreign tax paid. This reduces the amount of the loss that Gemma needs to set against her total income in 2020 to 2021, allowing her to use more of the loss to reduce her tax liability in another year.

Where relief by deduction is being claimed, this can be shown in the relevant computation provided with your tax return, or you can give details in the ‘any other information’ section of the SA100 (page TR7). You do not need to complete the sections of the SA106 that relate to FTCR if only deduction relief is being claimed.

Complex Cases – Practical Considerations

As above, you can choose the most beneficial method between FTCR and deduction relief, to maximise the relief given. FTCR will generally produce the best result, unless there is no UK tax liability due to losses or deferrals. Subject to any specific ordering rules, you can choose the order in which the sources are included in your income tax computation. For example, if you receive 2 separate dividends, the total of which straddle different rates, you can choose which uses up the lower rate band.

To maximise FTCR, it will likely be beneficial to include the item which incurred the highest rate of foreign tax as also attracting the highest UK rates.

Likewise, where multiple assets incurring foreign tax are sold, the amount of credit must be calculated separately for each capital gain. An excess of foreign tax over the UK tax on a particular gain cannot be credited against UK tax on any other capital gain.

As above, to maximise FTCR, any available allowances and losses should be set against UK amounts on which no foreign tax was payable first, prioritising those taxable at the higher rates (residential property and carried interest). After this, it should be set against amounts where the foreign tax paid is less than that in the UK. Finally, any remaining allowances or losses should be set against items where foreign tax exceeds the UK tax payable, although this ultimately makes no difference to the liability as it is already covered by the foreign tax.

If some capital gains will fall within the basic rate band and others in the higher rate band, the foreign gains should be taxed at the higher rate in order to maximise FTCR. Within these, capital gains where the foreign tax exceeds the UK liability should be allocated to the higher rate first.

This ordering will typically produce the best results but there are exceptions. If you have more than one source of foreign income or capital gains eligible for relief, then maximising the relief available can require an involved and complex calculation. If you are in any doubt about your circumstances you should ask your tax adviser.

If you are preparing your own calculation, then for income you can use the Foreign Tax Credit Relief working sheet (FTCRWS) to assist with this. Guidance on completing this is included in appendix 1.

Likewise, the Foreign Tax Credit Relief working sheet for gains can be used to help calculate the relief allowable against your CGT liability. Guidance on completing this is included in appendix 2.

You can use the ‘any other information’ white space on your return (SA100 page TR7) to give supporting details of the ordering and calculations underlying your FTCR claim.

Relief for Trusts and Estates

Trustees may be liable to tax on income or gains from an overseas source. See TSEM3000 and CG33500C for more information.

The personal representative of an estate is responsible for settling any Income Tax arising or Capital Gains Tax due on assets sold during the administration period. More details can be found in CG30200C.

Where foreign tax is also paid on such income or gains, relief is available under the same general principles as discussed at the start of this helpsheet. DTAs must first be considered and if double taxation does occur then a choice can be made between FTCR and deduction relief. This will be subject to the different rates and allowances that are available to trusts, compared with individuals. See Trusts and Taxes for more information.

Appendix 1: Completing the FTCRWS

You must fill in a separate working sheet for each item of income.

Where you have more than one item, to start you may find it beneficial to work out the FTCR for the item of income taxable at the highest foreign tax rate.

Before you start using this working sheet, you need to fill in the Tax calculation summary notes up to box A294. This will give you the figures you need to fill in the FTCRWS.

Boxes TC1 to TC5

If you’re completing your first FTCRWS, copy into these boxes the figures in boxes A43, A44, A64, A77 and A78 on your Tax calculation summary notes.

If it’s not your first claim, copy the figures from boxes TC11 to TC15 on your last FTCRWS into boxes TC1 to TC5.

Boxes TC6 to TC10

Put the item of income, for which you’re claiming FTCR, in one of the boxes TC6 to TC10 (use the taxable amount from column F on your ‘Foreign’(SA106) pages).

Start with the item of income that has the highest rate of foreign tax taken off.

Box TC16

If this is your first FTCRWS, copy the figures from box A130 of the Tax calculation summary notes.

If not, copy the figures from box TC16 on your previous FTCRWS.

Box TC17

If you claimed tax deductible expenses against any foreign income amounts in boxes TC6 to TC10, you need to put the amounts claimed in box 17, because not all of your income will have been charged tax in the UK.

Example 6 – Deductible Expenses

Phil earns £20,000 working for a company in Denmark and pays Danish Income Tax. He claims £150 for business travel and subsistence expenses in box 17 on the ‘Employment’ page of the UK Self Assessment return. Phil will only have had £19,850 charged to UK tax, so he needs to put £20,000 in box TC6 and £150 in box TC17.

Box TC19

If your income is greater than £100,000 your personal allowance is restricted. Similarly, if you are entitled to an age-related allowance this will also be restricted if your income exceeds £32,200. If your personal allowance or age-related allowance has been restricted you need to work out the allowance that would be due if the income in box A81 of the Tax calculation summary notes is reduced by the amount of income in boxes TC6 to TC10 and increased by any amount in box TC17. Page TCSN 29 and TCSN 30 of the Tax calculation summary notes explains how to calculate the age-related or reduced personal allowance. Complete boxes A to C:

Revised personal allowance	Box
Revised personal allowance from box B6 on page TCSN 29 of the Tax calculation summary notes	A £
Allowance previously claimed in box A120 on page TCSN 11 of the Tax calculation summary notes	B £
Box A minus box B. Copy to box TC19	C £

Box TC125

If you qualify for Top Slicing Relief, this is a relief which can reduce higher rate on a chargeable event gain, you need to reduce the income shown in box E1 on page TCSN 36 of your Tax calculation summary notes by the amount in boxes TC6 to TC10.

Enter the new amount in box TC125.

Box TC132

If you, or your spouse or civil partner, were born before 6 April 1935, go to section 14 on page TCSN 30 of the Tax calculation summary notes and work out the allowance that would be due when you reduce your income by the item of income in boxes TC6 to TC10.

Section 14 of the Tax calculation summary notes explains how to work out Married Couple’s Allowance.

Enter the new amount in box TC132.

Box TC143 to TC149

As well as your Income Tax you may also need to pay additional tax charges, and these may affect the FTCR that you are entitled to. If you have made entries at either of boxes A74, A275, A276, A277, A278a or A279a you will need to complete boxes TC134 to TC149.

TC144 Pension savings charge

Without including the foreign income for which you are claiming FRCR use the Tax calculation summary notes to recalculate up to box A164 and then use HS345 to calculate the figure for box TC144.

TC145 State Pension lump sum

Without including the foreign income for which you are claiming FTCR use the Tax calculation summary notes to recalculate up to box A164 and then use Section 19 on page TCSN 44 to calculate the figure for TC145.

TC146 Tax charge on Child Benefit payments

Without including the foreign income for which you are claiming FTCR use the Tax calculation summary notes to recalculate up to box A164 and then use Section 20 on page TCSN 45 to calculate the figure for TC146.

TC151

If this is your first FTCRWS, use the figure in box A294 (on your Tax calculation summary notes) to fill in box TC151.

If not, use the figure in box TC14 on your previous FTCRWS.

Box TC152

Take away box TC150 from box TC151 and put the amount left over in box TC152.

Box TC153

Use the amount of foreign tax paid from column C on your ‘Foreign’ pages to fill in box TC153.

If a double taxation treaty restricts this amount, multiply the foreign income (from boxes TC6 to TC10) by the allowable percentage rate in the digest of Double Taxation Treaties and put this new amount in TC153, instead.

Box TC154

Put the smaller of the amounts in box TC152, and box TC153 in box TC154.

Add together the box TC154 for each FTCRWS completed and put the total in box 2 on the ‘Foreign’ pages, and box A295 in the Tax calculation summary notes.

Appendix 2: Completing the Gains working sheet

Column A (rows 1 to 12)

You should enter in column A details of your chargeable gains.

Your gains are those before allowable losses have been set off. You can find details of all of the gains to enter on your completed computation working sheets from page CGN 6 of the Capital Gains Tax summary notes.

Columns B and C (rows 1 to 12)

Use these columns to allocate out the overall figures shown in column A.

Enter in column B the amounts corresponding to gains chargeable to UK Capital Gains Tax for which you’re not claiming Foreign Tax Credit Relief. That is, any UK gains and any foreign gains that have either not been subject to any foreign tax or where the foreign tax paid has been deducted in computing the amount of the gain that is chargeable to UK tax.

Any amount remaining after losses and the AEA have been taken into account will need to be allocated to the 10%, 18%, 20% and 28% rates in rows 7, 8, 9 and 10 as appropriate.

Enter in Columns C(i) to C(x) individual gains that have been subject to foreign tax for which you’re claiming FTCR. If you have more gains than will fit in the working sheet, photocopy it before making any entries.

As discussed earlier in this helpsheet, you can allocate losses (row 2) and the AEA (row 3) in the way that is most beneficial to you. See ‘complex cases – practical considerations’ for further discussion.

You must where possible, and if you’ve sufficient losses, deduct all your losses of the year from gains until all gains have been extinguished. Any unused losses can then be carried forward and set off against gains accruing in a following year. If you’ve enough gains left, any losses brought forward from a previous year must then be used to reduce your total gains but only down to an amount equal to the AEA (even if this means that the tax payable in row 11 is reduced to an amount less than the foreign tax paid on the gain in row 12). Any unused losses brought forward can then be carried forward.

Column C (row 12)

Enter the respective amounts of foreign tax eligible for FTCR.

Column C (row 13)

For each separate column, enter the lower of the figures at rows 11 and 12.

Column A (row 13)

Add up all the figures in column C, row 13, and enter the total in column A row 13. This is the total FTCR allowable for the year. Copy this figure to box 39 in your Foreign pages.

Contact

For general enquiries contact the Self Assessment: general enquiries helpdesk.