20th December 2013 by Simon Misiewicz
Are you earning money whilst you are living abroad?
Are you earning money from overseas?
The subject of UK and international tax is complex to say the least. As you would expect from having multiple countries tax you at the same time in some instances.
As such we have written a number of articles to help you along.
Part 1: Paying tax in the UK depends on where you live
Part 2: Rental income from property
Part 3: Capital Gains Tax (CGT), UK and international tax
Part 4: Domicile & leaving the UK
Part 5: Double Taxation Agreements (DTA) & IHT
Without further delay let us help you with the complex subject of UK and international tax.
Part 5: Double Taxation Agreements (DTA) & IHT
Double Taxation Agreements (DTA)
If you are living in two different countries it is possible that you are going to be paying tax in both countries but you can claim double taxation relief (2).
Different countries and states have their own tax rules and laws. When you have income and gains from one country and you are resident in another, or you are resident in both, you may be liable to pay tax in both countries under their different tax laws. To avoid ‘double taxation’ in this situation, the UK has negotiated Double Taxation Agreements with many countries.
DTAs are designed to protect against the risk of an individual or a corporate entity being taxed twice where the same income is taxable in two countries.
If you are resident in more than one country it is likely that your tax affairs are complex. The way DTAs affect you will depend upon your individual circumstances and the terms of the relevant DTA.
DTAs also provide details of other things which can affect your liability to UK tax, such as whether or not you are able to claim personal tax allowances, and for what types of income and at what rate you will receive relief from tax. To obtain relief from UK tax under the terms of a DTA it will be necessary for you to make a claim under the relevant DTA.
If you are a resident of a country with which the UK has a DTA and not resident in the UK, you may be able to claim exemption or partial relief from UK tax on certain types of income from UK sources. You may also be able to claim exemption from Capital Gains Tax on the disposal of assets (3).
Double taxation agreements usually operate in one of three ways:
• You pay tax in your country of residence and get an exemption or relief from tax in the country where you have made your income or gain.
• You pay tax in the country where you have made your income or gain and get an exemption or relief from tax in the country where you are resident tax is deducted in the country where you make your income or gain.
• You declare this tax as already paid on your tax return for the country where you are resident – the tax already paid is known as ‘withholding tax’.
The agreements work in the same way for residents of both countries involved, but which system is in place depends on the individual agreement between those two countries (and can depend on the type of income involved). For example, where the relevant agreement allows UK residents to claim exemption or relief from Income Tax in Spain, Spanish residents can claim the same for their income in the UK (5).
Under many DTAs, if you are a resident of another country, you may be liable to tax only in that country on any gains you make from disposing of some types of assets. In that case, you will be exempt from Capital Gains Tax in the UK even if you are ordinarily resident here. But if you are resident in another country on a temporary basis, and then return to be resident in the UK, you may be charged Capital Gains Tax on disposals you made when you were not UK resident and not ordinarily resident (3).
Generally, if you are domiciled, or deemed to be domiciled, in the UK, inheritance tax applies to your assets wherever they are sited.
If you are domiciled abroad, inheritance tax applies only to your UK assets. However, if you are domiciled abroad there is no charge on excluded assets and HMRC may remove certain other types of UK assets from the tax charge. For more information on excluded property see ‘What is excluded property? (6)
Online help and residency test
HMRC have devised a mechanism to help you understand if you need to pay UK tax. Please copy and paste this link into your browser and go through the test:
If you are looking for an accountant or thinking of changing your current accountant because they do not understand property investing then please contact Selina on firstname.lastname@example.org to book in your free “Property Finance & Tax Mastery” one to one consultancy slot.
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