INTM162020 - UK residents with foreign income or gains: double taxation relief - claims and procedures - 'Subject to tax'

The terms of some agreements provide that a resident of the United Kingdom will be entitled to exemption or relief from the foreign tax on certain types of income only if they are subject to tax on that income in the United Kingdom.

A person is regarded as subject to tax if, for example

a) they do not pay any United Kingdom tax because their income is covered by personal allowances and reliefs,

b) the foreign income arises in a penultimate year and no penultimate year adjustment is made, so the income falls out of assessment in the United Kingdom,

c) the income is wholly covered by capital allowances so that no United Kingdom tax is payable,

d) they are entitled to a deduction under ITEPA03/S341 or S376

e) the remittance basis applies: the person is subject to tax only on the sums remitted.

A person is not regarded as subject to tax in the United Kingdom if the income in question is exempted from United Kingdom tax by an extra-statutory concession or is statutorily exempt from tax, for example the income is that of a charity (CTA10/S478 onwards).

If there are other circumstances where there is doubt as to whether a United Kingdom resident is subject to tax on foreign income, refer to CTIAA Business International, Tax Treaty Team.

Charities and superannuation schemes are, however, regarded as `liable to tax' in the United Kingdom notwithstanding that they are exempt from United Kingdom tax under certain conditions. They are therefore residents of the United Kingdom (INTM153050, first sub-para) and are entitled to claim benefits under agreements where the benefits do not depend on the charity or superannuation scheme being subject to tax on the income in question.