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HMRC internal manual

International Manual

From
HM Revenue & Customs
Updated
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UK residents with foreign income or gains: income tax: Computation - assessable amount

Where credit is claimed against UK Income Tax for foreign tax paid on income from a foreign source, the amount of that income for all UK tax purposes is:

a) Foreign income assessable on the arising basis

No direct foreign tax is to be deducted. Where, exceptionally, the double taxation agreement provides for relief for underlying tax on a dividend (see INTM164410) the underlying tax should be added to the amount of the income. Treat the whole of a foreign pension as chargeable to UK tax notwithstanding the deduction of one tenth under ICTA88/S65 (2).

Example:

An individual receives a dividend of 100 from which 15 foreign withholding tax was deducted. The amount of income assessable is 100.

b) Foreign income assessable on the remittance basis

Add the amount of direct foreign tax attributable to the amount of income remitted. Where, exceptionally, the agreement provides for relief for underlying tax on a dividend (see INTM164410), the underlying tax should also be added to the amount of the dividend remitted. If you have difficulty in determining the amount of foreign tax attributed to income remitted, refer to the Personal Tax International - Advisory (part of Charity, Assets & Residence).

Example

  £1,000
   
Foreign tax £400
Net foreign income £600
Remitted to UK £300
   
UK measure of the income  
Income remitted £300
Plus foreign tax (300/600 x 400) £200
Therefore UK measure is £500