Double Tax Treaties

Double tax treaties (also known as double tax agreements) are created between two countries which define the tax rules when it comes to a tax resident of both countries.

Double tax treaties can be complex and often will require professional assistance, but they are created to try to ensure that an individual is able to claim tax relief rather than have to pay tax on the same income in two different jurisdictions.

Each double tax treaty is different, although many follow very similar guidelines - even if the details differ.

For the purpose of this article, we are considering an individual as being tax resident in the UK and an additional country, although double tax treaties can exist between any two countries.

If you are unsure of your UK tax residence status, please read our article about the Statutory Residence Test.

Application of double tax treaties and "treaty residence"

Where an individual is tax resident in the UK and also tax resident in another jurisdiction, i.e. a "dual resident", and the other jurisdiction has a tax treaty with the UK, the treaty divides the taxing rights over an individual’s income and gains between the two countries.

Essential to determining whether it is possible and then how to apply a double tax treaty is establishing the individual’s "treaty residence" position, as it is the country of treaty residence which generally assumes the taxing rights. 

Where you are treaty resident will be determined by applying a series of "tie breaker" tests as outlined in the relevant Double Tax Agreement in place with the UK.

Two typical examples where treaty non-residence are important are as follows:

UK employer, dual resident but treaty resident outside the UK

In this example, an individual works for a UK employer but is a dual resident and spends their time working in the UK and overseas. Given that the individual is working in two or more tax jurisdictions (including the UK) it is very important to determine where they are treaty resident.

In this scenario, the individual may be considered "treaty non-resident" from a UK perspective and therefore the Employment Income Article of the Double Tax Agreement will usually restrict the UK tax liability to UK workdays only. This means that tax on income would only be due to the UK HMRC for the days that the individual actually worked in the UK, and not days worked in other jurisdictions.

This arrangement is typical in scenarios where an expat is employed on a local UK contract, but their family have remained at home somewhere in Europe and they spend three to four days in the UK and the remaining time at the family home outside of the UK.

High net worth investor, dual resident but treaty resident outside the UK

If an individual is considered a treaty non-resident in the UK, under any double tax treaties in place, the individual would only be liable for tax in the UK where the income has come from UK activities. This is important because it means that all non-UK investment income and gains are sheltered from UK tax.

How to claim "treaty residence" under double tax treaties

Despite being relatively common, the application of double tax treaties, and therefore the claim for tax relief can be a complicated affair.

To begin the process, an individual who believes they may be tax resident in two jurisdictions, including the UK, must make a claim for treaty residence via a self-assessment tax return and a through a specific tax treaty relief claim.

It is possible for people to do this themselves, however, there are many rules, requirements and tests which need to be applied correctly to ensure that the correct tax residence statuses can be applied.

Far more common is to request the services of an accountant who is qualified and experienced in claiming tax relief using double tax treaties. Fees will vary depending on the level of complexity of an individual's personal circumstances, in nearly all cases the tax savings far exceed any costs incurred by using an accountant - and they can be sure that they are paying the right amount of tax with total confidence.

Countries with a double tax treaty with the UK

The following table lists the countries that have a double tax treaty with the UK (as of 21st September 2021). There is an up to date list on the UK Government's website on active and historical double tax treaties.

The impact of Brexit on double tax treaties

As every tax treaty is agreed between the two jurisdictions, rather than through the EU or EEC there will not be any impact on any tax treaties between the UK and any other country. However, as with any country, as trade deals are negotiated there may be changes in the future but not as a consequence of Brexit.

Get help understanding possible double tax treaties with a free tax introduction

As there are many rules and complications which can arise when attempting to apply double tax treaties, it is important to seek professional assistance from a qualified and experienced accountant.

Therefore we offer free introductions to tax specialists who will offer a short initial consultation who will be able to provide you with answers to your questions and help you understand whether a double tax treaty could apply to you and help you save significant amounts of unnecessary tax.

If you decide that you wish to proceed with any tax advice or services on offer, you will be provided with a quote after which you can decide whether you wish to go ahead or not.