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This publication is available at https://www.gov.uk/government/publications/non-residents-relief-under-double-taxation-agreements-hs304-self-assessment-helpsheet/hs304-non-residents-relief-under-double-taxation-agreements-2015
This helpsheet explains how non-residents can get relief from United Kingdom (UK) tax under Double Taxation Agreements (DTAs) entered into by the UK. If you’ve completed box 1 or box 3 on the Residence, remittance basis etc pages, and are resident for tax purposes in a country with which the UK has a DTA you should read this helpsheet before filling in the rest of your tax return.
The purpose of this helpsheet
This helpsheet enables a non-UK resident to get full or partial relief from UK tax, where appropriate, on UK income where the relevant DTA reduces the rate at which tax is to be charged below that provided by UK domestic tax law.
For example, the UK might, under its domestic law, levy a withholding tax of 20% on interest paid to a non-resident. If the DTA provides that where the recipient of that interest is a resident of the other country, the rate of UK tax should be limited to 15%, the non-resident recipient is entitled to relief of 5%.
How Double Taxation Agreements work
A DTA is an arrangement entered into by the governments of 2 countries. It consists of a series of detailed provisions designed to eliminate or relieve the taxation of the same income or gains in more than one country. This is achieved by the UK in its DTAs in a variety of ways.
Income or gains may be fully relieved from tax in the country where the income or gains arise. In other words, the source state gives up all its taxing rights in favour of the country of which the recipient is a resident.
The country in which the income arises charges the income derived by a resident of the other country at a rate lower than its normal domestic rate. In these circumstances the source state gives up only part of its taxing rights.
Where the income or gains remain taxable in both countries, so that the source state retains its taxing rights, the country in which the recipient is resident gives credit for the source country’s tax against its own tax. If you want to claim credit relief, you’ll have to make your claim to your country of residence and not to HM Revenue and Customs (HMRC). The claim form doesn’t therefore provide for such a claim.
All these basic methods feature in DTAs between the UK and other countries. But many provisions in DTAs require certain conditions to be fulfilled before relief can be given. Because all DTAs are different it’s essential to consult the relevant articles of the particular DTA. Your HMRC office can supply forms to allow you to make an application to allow future payments of interest, royalties, pensions and annuities to be paid together with the appropriate amount of double taxation relief. The forms can also be downloaded here.
Certificate of overseas residence
If you were resident for tax purposes in a country other than the UK, and you want to claim relief from UK tax, under the terms of a DTA between the UK and that other country, as a resident of that country then you need to get a certificate from the overseas tax authority. You must state on the certificate that you are resident there for tax purposes for the period in question.
Where necessary the certificate must also show that you’re subject to tax in your country of residence either on the whole or on part of the income for which relief is claimed (see ‘Other conditions for relief’ below). Where only part of the income is taxed in your country of residence then that amount of income must be shown on the certificate. You must attach the certificate to the claim form and submit it with your return.
Special case – the United States of America
Special rules apply where the other country is the United States of America (USA), if you are claiming to be a resident of the USA. Statements concerning residence should not normally be sought from the USA Internal Revenue Service. This is because the USA operates a special system whereby it taxes its ‘citizens’ on their world wide income, wherever they may be resident.
Article 4(2) of the Double Taxation Convention (DTC) provides that a citizen or green card holder will be treated as a resident of the USA for purposes of the DTA, and thereby entitled to treaty benefits, if the following 2 conditions are met:
- they must have a substantial presence (see ‘Substantial presence test’ below), permanent home or habitual abode in the US
- they mustn’t be treated as a resident of a state other than the UK under any treaty between the UK and a third state
Substantial presence test
You’ll have a substantial presence if:
- you were present in the US on at least 31 days in the calendar year under test
- the sum total of days on which you were present in the US in the year under test and in the 2 preceding years adds up to at least 183 days
For the purposes of this calculation, a day spent in the US in the year preceding the year under test counts as 1/3, and a day in the year before that counts as 1/6. You should count part days of presence in the US as if they were whole days for this purpose.
If you spent 48 days in the US in 2014, 250 days in 2013 and 365 days in 2012, the calculation would be as follows.
|Year of test – 2014 (more than 31 days spent in the US)|
|2014||48 days × 1/1||=||48|
|2013||250 days × 1/3||=||84|
|2012||365 days × 1/6||=||61|
Both legs of the substantial presence test are passed and you will be regarded as resident in the US under that country’s domestic law.
Other conditions for relief
Some articles in DTAs require other conditions to be fulfilled before relief from UK tax is granted. For example, relief is sometimes only available if the recipient is the ‘beneficial owner’ of the income or is ‘subject to tax’ in the other country for the income in question, whether for the whole of that income or just for income received in the country of residence. Also, employment income for duties carried out in the UK is sometimes exempted from UK tax depending on the fulfilment of certain conditions.
You therefore need to check the precise terms of the particular treaty with which you are concerned, and get sufficient evidence to demonstrate that the necessary conditions are met, before making a claim for relief from UK tax. You must keep this evidence in case it’s needed later to support your claim.
If any part of your claim relates to trust income, it’s necessary to detail the nature (for example, dividend, interest and so on) and the amounts of each underlying source of the trust income concerned. You should show the name of the trust and the HMRC office and reference number for the trust in the ‘Additional information’ box on the claim form.
You should keep all the vouchers (originals, not photocopies) certifying the amount of UK tax or tax credit as shown in your claim (at 3(b), column D on page 2 of the claim form). You may need this later to support your claim.
How to claim relief using this helpsheet
Fill in 3(a) of the claim form on page 1 to claim full relief from UK tax where the DTA provides this for a person who is a resident of the other country. Where you claim full relief, exclude such income or gains and any tax deducted at source from other parts of your UK tax return. Where UK tax has been deducted at source, enter the amount of the tax deducted in box 22 of the Residence, remittance basis etc pages unless either:
- the tax has already been repaid
- you’ve already made a separate claim to HMRC for repayment of that tax
But see the next paragraph if you also claim partial relief.
Complete 3(b) of the claim form on page 2. In the income section enter particulars of all items of income for which you’re claiming relief from UK tax under a DTA, but exclude any item of income for which an in-year claim has already been made to HMRC. If there is insufficient space on the claim form use a separate sheet to itemise the income and carry the total relief due to the box at the foot of the ‘Partial relief claimed’ column. Enter the amount in box 22 of the Residence, remittance basis etc pages.
Now fill in the relevant pages of your tax return, entering all items of UK income other than those you have entered on the claim form.
Send us your completed tax return including:
- the Residence, remittance basis etc pages showing the amount of treaty relief claimed in boxes 21 and 22
- the completed claim form
If you want to calculate your tax you will need the tax calculation summary pages and notes. The figure of treaty relief entered in boxes 21 and 22 of the Residence, remittance basis etc pages should be entered in the ‘Foreign Tax Credit Relief’ box, box A208 in the Working Sheet in the tax calculation summary notes.
Dividends from UK companies and dividend distributions from UK authorised unit trusts and open-ended investment companies (‘UK dividends’) paid after 5 April 1999
This note is for claimants who receive UK dividends and who are resident in a country with which the UK has a DTA that provides for payment of tax credit on UK dividends. Since 6 April 1999 the amount of tax credit on UK dividends is 1/9 of the dividend paid. This means, for example, that a UK dividend of £900 carries a tax credit of £100.
DTAs that provide for payment of tax credit on UK dividends still give the right to claim payment of tax credit. However, if you claim payment of tax credit on a UK dividend paid after 5 April 1999, HMRC will have nothing to pay to you.
This is because UK dividends no longer carry enough tax credit to cover the amount of tax which the UK retains under the terms of the DTA. (The amount retained is usually 15% of the total of the dividend plus the tax credit.)
Amount retained (£1,000 × 15%) = £150
The amount retained is more than the tax credit so there is no tax credit left to pay you. In order to exclude the dividend income from your return, you should complete 3(b) of the claim form on page 2 and enter ‘0’ in the box headed ‘Partial relief claimed’ as HMRC has nothing to pay you.
If you were born before 6 April 1948
If you were born before 6 April 1948, enter in the ‘Any other information’ box, box 19 on page TR 7 of your tax return, the total gross income you have entered in the ‘Gross amount of income’ column in 3(b) on page 2 of the claim form (excluding income on which the maximum rate of UK tax under the DTA is nil). For example, if this total is £100 enter: ‘I have claimed partial relief for DTA purposes on gross income of £100 which is not included in this tax return’. This will allow HMRC to make the adjustments required for age-related allowances taking into account your DTA income.
United Kingdom Real Estate Investment Trusts (UK-REITs)
Since 1 January 2007 it has been possible for a UK-REIT to pay a property income distribution out of its tax exempt income. Property income distributions are paid to investors with basic rate Income Tax (currently 20%) taken off. If you live in a country with which the UK has a double taxation treaty and have been paid a property income dividend, it’s possible that you’re entitled to claim repayment of some or all of this tax. You should make any claim at 3(a) or 3(b) on pages 1 and 2 of the claim form.
Online forms, phone numbers and addresses for advice on Self Assessment.