Double tax agreements (DTA’s)

Overview

It is important to know that if you are resident in the UK, you will be assessed for tax purposes on your worldwide income. For example, if you are resident in the UK and have a rental property in Spain, you will be required to declare the foreign rental income on your UK tax return and pay tax on the profits.

But I already pay tax on that income in Spain. Why do I have to pay tax twice?

Excellent point. This is where Double Tax Agreements (DTA’s) come in. The agreements usually allow the country where the income arises from to tax the income. The income is assessed in the UK and relief from double taxation is claimed. This relief is known as Foreign Tax Credit relief and you must be resident in the UK in order to make a claim. Alternatively, you may be able to claim the foreign tax paid as an expense.

Example

In simple terms, Foreign Tax Credit can often be claimed as the lower of:

  • The amount of foreign tax paid on the income
  • The amount of UK tax that would be due on the foreign income

Let’s say Joe lets out a property in Spain. After converting Euros to Pound Sterling, he has gross income of £15000 and expenses of £3000. Joe then pays tax of £2280 on the profits. He is resident and employed in the UK and is a 40% taxpayer.

Joe must declare this income on his UK tax return. Thanks to the DTA with Spain, he can claim Foreign Tax Credit Relief so that he is not paying tax twice on the same income.

Joe’s rental profits are £12000 and will be taxed in the UK at 40% – a total of £4800. The tax already paid in Spain is lower than this amount and will therefore be claimed as a tax credit. This means that the tax due on his Spanish rental income in the UK will be £4800 minus £2280, equalling £2520.

Further Applications of DTA

Double Tax Agreements do not just apply to landlords. As previously mentioned, UK residents are liable for tax on their worldwide income – such as employment income, dividends, or capital gains. Meanwhile, non-UK residents with UK income will be liable for UK tax on that income.

Double Tax Agreements can be very complicated to understand. We would suggest speaking to our accounts team and at the same time seeking advice from an advisor in the country where you are resident or where you receive income.

 

Territories With DTAs

See below a list of territories with DTAs with the UK. Please note that the contents and terms of each agreement may vary:

AlbaniaCyprusIsraelMongoliaSlovenia
AlgeriaCzech RepublicItalyMontenegroSolomon Islands
Antigua & BarbudaDenmarkIvory CoastMontserratSpain
ArgentinaEgyptJamaicaMoroccoSri Lanka
ArmeniaEstoniaJapanNamibiaSudan
AustraliaEthiopiaJerseyNetherlandsSwaziland
AustriaFalkland IslandsJordanNew ZealandSweden
AzerbaijanFaroesKazakhstanNigeriaSwitzerland
BahrainFijiKenyaNorwayTaiwan
BangladeshFinlandKiribatiOmanTajikistan
BarbadosFranceKoreaPakistanThailand
BelarusGambiaKosovoPanamaTrinidad and Tobago
BelgiumGeorgiaKuwaitPapua New GuineaTunisia
BelizeGermanyLatviaPhilippinesTurkey
BoliviaGhanaLesothoPolandTurkmenistan
Bosnia-HerzegovinaGreeceLibyaPortugalTuvalu
BotswanaGrenadaLiechtensteinQatarUAE
British Virgin IslandsGuernseyLithuaniaRomaniaUganda
BruneiGuyanaLuxembourgRussiaUkraine
BulgariaHong KongMacedoniaSaint ChristopherUruguay
BurmaHungaryMalawiSaudi ArabiaUSA
CanadaIcelandMalaysiaSenegalUzbekistan
Cayman IslandsIndiaMaltaSerbiaVenezuela
ChileIndonesiaMauritiusSierra LeoneVietnam
ChinaIrelandMexicoSingaporeZambia
CroatiaIsle of ManMoldovaSlovak RepublicZimbabwe

DISCLAIMER
© Thandi Nicholls Ltd 2021 All Rights Reserved – The above articles are provided for guidance only and may not cover your personal circumstances so you should not rely on them. It is important that you seek appropriate professional advice which takes into account your personal circumstances where you can provide the full facts of the case and all documents related to your case. Thandi Nicholls Ltd t/a uklandlordtax.co.uk, K Nicholls FCA or S Thandi cannot be held responsible for the consequences of any action or the consequences of deciding not to act.

Do you have a question for our experts?

If there’s a property tax issue that has you puzzled or worried, get in touch. Everyone on our team loves to talk, especially when it helps people like you find peace of mind.