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HMRC internal manual

International Manual

UK residents with foreign income or gains: double taxation relief: Basic principles

With certain exceptions, the same basic principles apply to foreign tax credit relief claimed under an agreement or unilaterally and to UK Income Tax, Corporation Tax and Chargeable Gains Tax. These principles can be summarised as follows:

  1. Source Rule - the source of the income or gain must normally be in the country which has charged the tax for which credit is claimed (see INTM161110 onwards).
  2. Basis of Allowance of Credit - credit is generally allowed against the UK tax on any income or gain by reference to the foreign tax on the same item of income or gain (see INTM161140 onwards). However, see INTM164210 onwards in respect of dividends paid on or after 31 March 2001.
  3. Residence of Claimant - the claimant must normally be resident in the UK (see INTM161190 onwards).
  4. Limit of Credit - credit is limited to the lesser of

(i) the foreign tax, and

(ii) the UK tax attributable to the doubly taxed income or gain (see INTM161210 onwards).

  1. Minimum Foreign Tax Rule - credit is to be allowed only for the `minimum’ amount of foreign tax chargeable under the laws of the foreign country and the provisions of any relevant double taxation agreement (see INTM161250 onwards).
  2. Foreign Taxes which Qualify for Credit - the foreign tax must be specified in the double taxation agreement or have been admitted by the Commissioners of Revenue & Customs for the purposes of unilateral relief (see INTM161260 onwards).