HMRC internal manual

International Manual

Double taxation: concept and principles: Methods of relief

You should check the other guidance available on GOV.UK from HMRC as Brexit updates to those pages are being prioritised before manuals.

In order to ease the burden of double taxation, many countries provide for relief. This is achieved either by virtue of the provisions of a double taxation agreement or under the country’s own domestic legislation. There are two main methods.

  1. Exemption. Income or gains are exempted from tax in the country where the income or gains arise; exemption may also be given in the country of the recipient’s residence.
  2. Credit. Where the income or gains are taxed in both countries, the country in which the recipient is resident gives credit for the other country’s tax against its own tax.

Where income remains taxable in both countries, the country in which it arises may agree, under a double taxation agreement, to tax it at a lower rate than its normal domestic rate. That is usually the case with dividends, interest and royalties. The country in which the recipient is resident gives credit against its own tax for the reduced amount of tax paid in the other country.

All these methods are used in double taxation agreements between the UK and other countries. However, for UK residents, relief from double taxation is usually achieved by the credit method. Where relief is not given under an agreement the UK gives credit unilaterally to UK residents.