Receiving income or making capital gains in more than one country can create unexpected tax liabilities. You may find that both the UK and another country have the right to tax the same earnings, rental profits or investment income, even when the income arises outside the UK. This can affect UK residents with overseas assets, expats who continue to receive UK income and individuals who split their time between two countries.
A double taxation agreement (DTA) or double tax treaty, aims to prevent or reduce double taxation by setting out how different types of income and gains are taxed between two countries and what relief may be available.
In this article we’ll cover how UK double taxation agreements work, which income and gains are covered and how residence status affects relief available through a double tax treaty.
If you need support with your UK and international tax affairs, you have previously worked abroad or you are considering working internationally, speak to our team of Wimbledon accountants for professional advice.
Table of Contents
What is a Double Taxation Agreement?
A double taxation agreement (DTA), also known as a double tax treaty, is an agreement between two countries that sets out how their respective tax rules apply to income and gains. The UK has DTAs with many countries, including Spain, France and India. These agreements establish when each country has the right to tax different types of income or gains and how double taxation can be relieved.
A double tax agreement does not itself create a new tax charge. Instead, it can limit a country’s right to tax income or gains under its domestic tax laws or provide relief where both countries have taxing rights. The income and gains covered, along with the relief available, depend on the specific treaty, the type of income or gain and the taxpayer’s circumstances.
How do Double Taxation Agreements provide relief?
Double taxation agreements use several mechanisms to prevent or reduce double taxation, depending on the type of income or gains involved. These include:
- Exclusive taxing rights: One country has the sole right to tax certain income or gains, preventing the other country from imposing a tax charge.
- Exemptions: A country may exempt specific income or gains from taxation, meaning they are not taxed in that country.
- Tax credits: Where both countries can tax the same income or gains, tax paid overseas may be credited against the UK tax liability, subject to certain limits.
- Reduced withholding tax: DTAs can reduce the tax deducted at source on payments such as dividends, interest and royalties, provided the relevant treaty conditions are met.
For example, a UK resident receiving dividends from an overseas company may have to pay tax in both countries. A DTA can help reduce this double taxation by allowing them to claim relief for qualifying foreign tax already paid, reducing their UK tax bill.
DTAs also apply to businesses. Under many agreements, business profits are generally taxable in the country where the business is resident, unless it operates through a permanent establishment, such as a qualifying branch or office, in another country. That country may then tax the profits attributable to the establishment.
A unique example of where DTAs don’t provide relief is for UK residents who are members of US LLCs. This is because the United States and the United Kingdom use different tax treatments on the LLCs’ profits, so double taxation relief doesn’t apply.
As treaties can be amended or replaced, it is important to check the latest provisions. The UK’s Tax Treaties collection provides access to these agreements and any amendments.
When can Double Taxation Arise? The Importance of UK Tax Residence
Double taxation can arise when two countries have the right to tax the same income or when both consider an individual to be a tax resident. Establishing tax residency is therefore important in understanding where tax may be due and what relief a double tax agreement can provide.
In the UK, tax residency is determined using the Statutory Residence Test (SRT), which considers the number of days spent in the UK alongside factors such as work, accommodation and family connections. Citizenship alone does not establish UK tax residence.
UK residents with overseas income
UK tax residents are generally liable to UK tax on their worldwide income, subject to any applicable exemptions and reliefs. This means that overseas income may still need to be declared to HMRC, even when tax has already been paid abroad. Common examples include foreign employment earnings, dividends from overseas investments and rental income from property abroad.
For example, a UK resident who rents out an apartment in Spain may have to pay tax on the rental profits in both countries. The UK-Spain DTA can help reduce the UK tax due by providing relief for qualifying tax already paid in Spain. However, each country may calculate rental profits differently, as they have different rules on allowable expenses.
Non-UK residents receiving UK income
Living abroad does not necessarily remove UK tax obligations. Non-UK residents may still be liable for UK tax on rental profits, earnings from work performed in the UK and certain pension payments. If their country of residence also taxes this income, relief may be available under the relevant DTA.
For example, someone living in France who rents out a UK property will generally remain liable for UK tax on the rental profits. Their French tax obligations must also be considered alongside the UK-France treaty.
The UK’s Non-Resident Landlord Scheme sets out when tax must be deducted from rent paid to landlords living abroad. Landlords can apply to receive their rent without tax being deducted, but this does not remove any underlying UK tax liability.
Dual tax residents and treaty tie-breaker rules
An individual may be considered a tax resident in two countries at the same time, particularly when moving abroad or maintaining homes in both countries. When this happens, the relevant DTA may include tie-breaker rules to determine a single country of residence for treaty purposes, by considering the following factors in order:
- Permanent home: Whether the individual has a home available to them in one or both countries, regardless of whether they own or rent it.
- Centre of vital interests: If they have a home in both countries, where their personal and financial connections are strongest, including family and work commitments.
- Habitual abode: Where they regularly spend their time if the earlier tests cannot determine their residence.
- Nationality or mutual agreement: If the previous tests do not resolve the issue, nationality may be considered, or the tax authorities may need to reach an agreement.
These rules determine an individual’s residence for the purposes of the DTA. According to HMRC, if an individual is assigned as a resident of another country, they are considered a “treaty non-resident” for UK tax purposes. This does not automatically change their tax residence under either country’s domestic laws. As a result, they may still need to submit tax returns in both countries, even if the agreement provides relief from double taxation.
Taxes Typically Covered by UK Double Taxation Agreements
UK DTAs commonly cover Income Tax, Capital Gains Tax and Corporation Tax, although the precise taxes covered vary between each double tax treaty.
Income
Employment income can be subject to double taxation when an individual lives in one country but works in another. Under many DTAs, the country where the work is physically carried out may tax the earnings, while the employee’s country of residence may also have taxing rights.
Employees working abroad for a short period may be exempt from paying tax on their earnings in the country where they work. However, this usually depends on:
- Spending no more than 183 days in the country.
- Working for an employer based in another country.
- Salary costs not being borne by the employer’s local branch or permanent establishment.
All conditions of the relevant DTA must be met to qualify.
Different rules apply to other types of income. DTAs often limit the tax deducted at source on dividends, interest and royalties, while rental income can generally be taxed in the country where the property is located. Where both countries tax the same income, relief may be available to prevent double taxation.
Some agreements also allow certain non-UK residents to claim the UK Personal Allowance, even if they would not otherwise qualify. However, eligibility depends on the double tax treaty, and individuals may also qualify under separate rules, including those based on citizenship.
Pensions
Pensions can create tax complications when someone retires abroad, particularly if their income is taxable in both countries. The rules depend on the type of pension, the individual’s country of tax residence and whether they receive regular payments or a lump sum.
Under many DTAs, private and occupational pensions are taxable only in the country where the recipient is a resident. However, some agreements also allow taxation in the country where the pension originates. Where UK tax has been deducted from a pension that should be exempt under a treaty, the recipient may be able to claim relief or a refund from HMRC.
Government-service pensions, including many civil service pensions, are often taxable in the country paying them, although exceptions may apply.
The UK State Pension is not classed as a government-service pension and is subject to different treaty rules. If the UK has a double taxation agreement with another country, the UK state pension is typically only taxed once, but whether that’s to the UK or the country of residence depends on the specific treaty.
Lump-sum pension withdrawals also require careful consideration. While most DTAs treat lump sums in the same way as regular pension payments, some contain separate provisions. A lump sum that is tax-free under UK rules may still be taxable in another country, making it important to check the relevant treaty before withdrawing funds.
Capital Gains Tax
A double taxation treaty also determines which country can tax gains when assets are sold. Gains from land and buildings can generally be taxed in the country where the property is located. Different rules may apply to shares, investments and assets connected with a permanent establishment. Some treaties also include specific provisions for shares that derive most of their value from property.
Non-UK residents may still have to pay UK Capital Gains Tax when selling UK residential property or other UK land. DTAs generally preserve the UK’s right to tax these gains, although the seller may be entitled to relief in their country of residence if the same gain is taxed there.
Non-residents must generally report disposals of UK property or land to HMRC within 60 days of completion, even where no Capital Gains Tax is payable. For further guidance, read our article on UK Capital Gains Tax for Non Residents.
Taxes Not Typically Covered by UK Double Taxation Agreements
National Insurance
National Insurance contributions are generally not covered by the UK’s standard double taxation agreements. Instead, separate social security agreements and international rules determine which country an individual must pay contributions in. These arrangements can help prevent employees and employers from having to pay social security contributions in two countries for the same period of work.
For example, an employee temporarily sent from the UK to work abroad may be able to continue paying UK National Insurance rather than contributing to the overseas system. However, this depends on the country, the length of the assignment and the relevant agreement. A certificate may also be required to confirm which country’s social security rules apply.
Different arrangements apply to those working in EU countries and other countries with which the UK has a reciprocal social security agreement.
Inheritance Tax
Inheritance Tax (IHT) is not normally covered by the UK’s standard DTAs for income and capital gains. Instead, the UK has separate agreements with a limited number of countries to prevent the same assets being taxed twice when someone dies or makes certain gifts.
Where no agreement exists, relief may still be available under UK rules. This can reduce the Inheritance Tax payable when qualifying taxes have already been paid overseas on the same assets.
The UK Inheritance Tax rules were updated in April 2025; an individual’s long-term UK residence status now generally determines whether their overseas assets are subject to UK Inheritance Tax. This applies to people who have been UK tax residents for at least 10 of the previous 20 tax years. Depending on their circumstances, overseas assets may remain subject to UK Inheritance Tax for up to 10 years after leaving the UK.
Anyone with assets in more than one country should carefully consider the impact of these rules for estate and inheritance tax planning. HMRC’s guidance on Inheritance Tax double taxation relief provides further information on the available relief and relevant agreements.
How do you Claim Double Taxation Relief?
The process for claiming double taxation relief depends on your tax residence, the type of income and the country where tax has been paid.
UK residents with overseas income report earnings through a Self Assessment tax return. They may then claim Foreign Tax Credit Relief to reduce their UK tax bill by the amount of qualifying foreign tax already paid, subject to certain limits. A UK certificate of residence may also be required when claiming relief abroad.
Non-UK residents who have paid UK tax may be able to claim an exemption or refund under the relevant DTA. This may involve completing an HMRC treaty relief form and obtaining confirmation of their tax residence from the overseas tax authority. Companies may also need to provide supporting evidence and calculations when claiming relief through their Corporation Tax returns or other HMRC procedures.
Before making a claim, it is important to gather the relevant information, including:
- Proof of tax residence: Details of where you lived, relevant dates and any tax residence certificates.
- Income and gains records: Details of overseas earnings, investments or gains, including amounts received and payment dates.
- Evidence of tax paid: Foreign tax assessments, payslips, withholding tax certificates or payment receipts.
- Treaty and relief information: Details of the relevant DTA and any tax relief or refunds already received.
For example, a UK resident receives £10,000 of overseas income and pays £1,500 in foreign tax. If the UK tax due on the same income is £2,000, and the full £1,500 qualifies for Foreign Tax Credit Relief, their remaining UK tax liability would be £500.
If the qualifying foreign tax exceeded £2,000, the UK tax credit would normally be limited to £2,000. HMRC would not refund the excess foreign tax. The actual relief available depends on the relevant treaty, the type of income and the applicable tax rules.
What if a country has no Double Taxation Agreement with the UK?
Even when the UK has no DTA with another country, individuals may still be able to claim relief to avoid paying tax twice on the same income or gains. This is known as unilateral relief and may also apply where an existing treaty does not cover a particular type of income or foreign tax.
UK residents may be able to claim Foreign Tax Credit Relief for qualifying overseas tax already paid on income or gains that are also taxable in the UK. The relief is generally limited to the UK tax due on the same income or gains, meaning it may not cover the full amount of foreign tax paid.
In some circumstances, foreign tax can instead be deducted when calculating taxable income.
Conclusion
Double taxation agreements help protect individuals and businesses from paying tax twice on the same income or gains. However, they do not automatically make overseas earnings, pensions or property gains tax-free. The relevant treaty, your tax residence status and the nature and source of your income or gains all influence how tax is applied and what relief may be available.
Seeking specialist tax advice can help ensure that your overseas income and gains are treated correctly, any available relief is claimed, and your reporting obligations are met.
At DS Burge & Co, we can help determine your tax residence, whether it’s the UK or abroad, review your international income and gains and help you get any available tax relief through a double taxation agreement. To discuss your circumstances and how we can help, visit our Personal Tax Advice page.