This part of GOV.UK is being rebuilt – find out what beta means

HMRC internal manual

International Manual

UK residents with foreign income or gains: dividends: Determination of rates of foreign underlying tax - Foreign Income - tax spared - example

Tax `spared’

Where credit is to be given for tax `spared’ (see INTM161270) two underlying rates are calculated

i) the actual rate, taking into account any tax paid for the purpose of calculating the gross dividend (TIOPA10/S31(4) & S32(5) ) and,

ii) the deemed rate, taking also into account the tax which would have been taken into account had it been payable but for the `sparing’ provisions.

The starting point for the foreign income computation is the dividend received by the shareholder.


The overseas country makes taxable profits of 157,894. These are subject to tax of 5%. If they had not qualified under the specific provision for tax spared in the double taxation agreement they would have been taxed at 25%.

Dividend received 150,000
Agreed underlying rates Actual 5% Deemed 25% (including the actual tax rate of 5%)  
Foreign income computation  
Dividend 150,000
Gross at actual underlying rate (5%) 7,894
Foreign income 157,894
Corporation Tax at 30% 47,362
Less deemed underlying tax (including actual tax) (£157,894 at 25%) 39,474
Net Corporation Tax payable 7,888