Foreign Tax Credit Relief

Hello, I am having an issue in computing foreign tax credit relief. Until very recently I thought I understood what I needed to, but this does not appear to be the case after I received a letter from HMRC questioning the amount of tax I had paid on foreign earnings in my previous tax returns. My issue relates to savings interest income which I got in Poland. The Polish authorities tax the interest at source at 19%. I was under the mistaken impression I could use this 19% against the 20% UK liability and just pay 1% extra to HMRC. I thought I was entitled to full relief. Indeed I took advice on this issue a number of years ago in the UK. It seems the advice was wron g although I always did declare the total amount of Polish income received. I have dug deeper and done some research and come across the "Digest of Double Taxation Treaties" on the HMRC web pages where I think I may have the answer. As you know this is a large table citing the main provisions of the Double Tax agreements the UK has with many contries around the world. For the row concerning Poland, the so-called "treaty-rate" is listed at 5% for bank savings interest. In the preamble before the table appears I also read "Where a percentage rate is shown it is the ‘treaty rate’. The relief from UK tax is the excess of the UK income tax over the treaty rate. The basic rate of UK income tax is 20%. So if (for example) the treaty rate is 15% then the excess of 5% tax is relievable if a satisfactory claim is made." This seems to suggest that I should have been paying 5% tax to HMRC (and NOT the 1% as cited above). Is that right ? But if I now read the full text of Double Taxation Agreement between the UK and Poland it seems to say that the Polish authorities can only take a maximum of 5%. This seems to further imply that HMRC would be expecting to receive 15% of the foreign income every year. Is this right or not ? So is it 5% or 15% ? Is there anything esle I should be aware of ? I am rather confused to say the least! I am very keen to comply and pay any tax due but I need to know how much extra before I submit my disclosure via the 'Worldwide Disclosure Facility'. Any help very gratefully received. Thank you very much. 

Hi,
 

Under the Double Taxation Agreement, you are only entitled to claim 5% on the Polish interest that you received. If you are a basic rate taxpayer, you are still allowed to receive £1000 of interest, including foreign interest, that is tax free. If your total interest is above this, then you would claim 5% of your foreign interest as the amount of tax credit that is due. HMRC would than charge a further 15% on the interest you receive  . Thank you

Dear HMRC Admin 17, Thanks a lot for your prompt, helpful and clear reply. I was thinking 15% is the correct HMRC tax liability too and you have kindly confirmed this. Again, thank you. With kind regards, Slavomir Paleolog

Hello HMRC Admin, I have foreign savings accounts in India with the total interest accrued in 2021-22 over £2000. For this foreign tax has already been taken at source (in India). But since am a resident in the UK and a higher rate tax payer, I understand that I'll have to declare this in the self assessment and pay the remaining tax here in the UK. I would like to know the following in order to complete the self assessment. (1) Do I get foreign interest tax relief on the first £2000 when I declare this to HMRC? for e.g. if my total foreign interest is £3500, will I be liable for UK tax only on £1500? (2) Should I declare the foreign interest under 'Foreign' interest section of the Self Assessment Return, as well as complete SA106? OR Do I just have to complete and submit SA106 since the total interest is greater than £2000? (3) Do I get tax relief on the interest earned on both my NRO and NRE accounts, and how much tax relief am I entitled for on each NRO and NRE account? (4) Do I have to specify this tax relief percentage in the Self Assessment Foreign section under column 'Maximum foreign tax credit relief'? (5) Apart from the above specified tax relief, will I be able to claim back some or all of the foreign tax already paid in India using SA106? (4) Since am completing the Self Assessment online, is there any way to complete and submit SA106 also online, as a supplement? Really appreciate if you could please advise on the above as soon as convenient. Many thanks for your help in advance.

Hi,

You will declare this as foreign income and you will need to tailor your return at section 3 to answer yes. Guidance on how to show this and claim any Foreign Tax Credit Relief can be seen here:

Tax on foreign income

Thank you.

Hi - I moved from India to UK in September and my bonus has been taxed both in India and UK as part of cross border movement. I wish to apply for relief under Double taxation agreement, however, on adding a selecting yes against "If you received any foreign income, do you need to complete the foreign section" in self assessment, I am getting a wrong sub option - "Do you wish to claim Foreign Tax Credit Relief on Capital Gains" as opposed to "Do you wish to claim Foreign Tax Credit Relief on Foreign income". Can someone help how this can be fixed ? Or what my next steps should be ? thanks in advance.

Hi Ankit Agarwal,
When you tick 'Yes' for declaring foreign income, you are then asked if you wish to claim foreign credit for Capital Gains Tax.  
Please select 'No' and then save and continue.
After you fill in your return for the foriegn sections and you view your calcultaion, you will be told how to calculate the foreign tax credit relief.
Thank you.