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HMRC internal manual

Lloyd's Manual

Double taxation relief: foreign tax paid by Lloyd's members

Foreign income tax is paid in connection with Lloyd’s results in three ways.

Foreign tax withheld

First, if any syndicate or personal funds, such as the Lloyd’s Deposit, are invested in foreign assets, foreign tax may be withheld when the interest, distribution etc. is paid over.

Syndicate foreign tax

Second, in some dozen or so countries, tax is levied by the overseas tax authority by reference to the profits of syndicate business written via agents operating in those countries. In some countries, tax is withheld from the premiums by the broker. In others, they are paid centrally through a system set up by Lloyd’s and syndicate results are reported to Names net of this overseas tax. As the syndicate results are reported to members net of overseas tax, it is necessary as a first step to add back that overseas tax, and the tax withheld from premium trust fund assets mentioned above, to the syndicate results to work out the full measure of profits.

US, Canadian, Japanese and Singapore tax

Third, returns are made to the US, Canadian, Japanese and Singapore tax authorities of each member’s Lloyd’s business in those countries and income tax is levied on the reported profits, investment income and gains. Lloyd’s deals with the returns and liabilities centrally and reports to Names annually the amount of taxes paid (or repaid) on their behalf.

US Closing Agreements

Taxation agreements, known as Closing Agreements have been drawn up regularly between Lloyd’s and the IRS (the USA’s Internal Revenue Service). There were agreements in 1968, 1980, 1990, and 2005. The UK authorities give non-US members credit for US taxes paid on Lloyd’s income under the Closing Agreement against any UK tax chargeable on the same income. It is a condition of the agreement that members must claim as many expenses as possible against their US tax. HMRC is not obliged to give credit for DTR for US members unless a reasonable attempt to claim relief for relevant expenses has been made in the US.

Options for Double Taxation Relief

Where foreign tax has been suffered on income that is also liable to UK tax, relief for the foreign tax can generally be allowed in one of two ways. It can be given either as credit for the amount of foreign tax paid against UK tax on the same income or where there is not enough UK tax due (or if the Name so chooses), relief can be given as a deduction in arriving at the net profit or loss.

The option of giving DTR as a tax credit used to be available only to UK residents, but this situation has changed in recent years (LLM7020).