INTM161220 | UK residents with foreign income or gains: double taxation relief: Foreign tax

Where credit is claimed on the root income basis (see INTM161140 paragraph (a)) there should normally be no difficulty in identifying the foreign tax on the doubly taxed income where the income consists of dividends, interest or royalties, because a withholding tax will have been deducted from the income at the time of payment. Where, however, the foreign income is charged to foreign tax by direct assessment and the basis period for the foreign assessment is different from the UK basis, it may be necessary to apportion the foreign tax. Many foreign countries adopt the calendar year as their basis period so that, for example, foreign rents of the year ended 5 April 2023 will be charged to foreign tax partly in 2022 and partly in 2023. Three quarters (270 days) of the 2022 tax and one quarter (95 days) of the 2023 tax will be available for credit against the UK tax charged for 2022/23.

Any apportionment that is necessary should generally be made in proportion to the number of days in the relevant periods.

An alternative time-apportionment basis suggested by the taxpayer can be accepted provided that it is reasonable and is applied consistently. An example might be time-apportionment by reference to the number of weeks or months in the relevant periods.

Where credit is claimed on the statutory income basis (see INTM161140 paragraph (b) and INTM161170), identification of the foreign tax on the doubly taxed income may present difficulties. If a satisfactory solution cannot be reached, submit the case to CSTD, Business, Assets & International, Assets Residence & Valuation in the case of individuals and to CSTD Business, Assets & International, Base Protection Policy in all other cases.