As a general rule, they still receive relief, even if there is no agreement, unless the foreign tax does not correspond to UK income tax or capital gains tax. This excludes many American emigrants living in the UK from the ability to file two tax returns (which is generally unavoidable) and also avoids the risk of double taxation (which is generally avoidable – read more). Under UK regulations, he is not domiciled and, in the United Kingdom, he is taxable only on his income from the United Kingdom. Mark remains resident in Germany and is therefore taxable on his global income. The Double Taxation Convention tells Mark that the UK has the primary right to tax income and that if Germany also wants to tax it, the foreign tax credit method should be used to avoid double taxation. For example, a person who resides in the United Kingdom but has rental income from a property in another country will likely have to pay taxes on rental income, both in the United Kingdom and in that other country. This is a common situation for migrants who have come to work in Britain to find themselves. However, you should keep in mind that, in practice, the transfer base helps to avoid double taxation when you live in the UK and earn foreign income and profits abroad. You will probably need to seek professional advice if you are in a double taxation situation. We`ll tell you how to find an advisor on our “Get help” page.
Many countries allow a credit to their national tax for foreign taxes paid on income from foreign sources. The domestic law of foreign tax credit systems will often lessen the effects of possible double taxation. To complement the provisions of their national legislation, countries often enter into tax agreements with other jurisdictions to clarify the use of foreign tax credits. The United States has a broad tax agreement with other countries – not just with the United Kingdom. Certain types of British visitors are subject to special treatment under a double taxation agreement, such as students, teachers or overseas government officials. However, there are restrictions imposed by both countries and, because of the differences between the two regimes, it is possible to be double-taxed. Proper planning can reduce this exposure. While the U.K.
and the U.S. have a tax contract to reduce double taxation and the U.S. credits British taxes, you may need advice on how best to use these credits.