Advanced Taxation (UK) · Income tax: the scope of income tax, residence and overseas aspects

Double Tax Relief and Non-Resident Allowances in ATX-UK

Updated 11 October 2026 · Fact-checked

Double tax relief stops the same income or gain being fully taxed twice. For each source, the UK credit is the lower of the foreign tax suffered and the UK tax on that income. Non-residents are taxed only on UK income, and they get the personal allowance only if they fall into a qualifying category.

Understand Double Tax Relief and Non-Resident Allowances

A UK resident is taxed on worldwide income and gains. The foreign country may also tax the same income, usually because the income arises there. Without relief you would pay twice. Double tax relief (DTR) removes or reduces that double charge.

There are two routes. Treaty relief comes from a double tax treaty between the UK and the other country. The treaty may give one country the sole right to tax, or cap the rate the source country can charge. Unilateral relief is given by UK law even where no treaty exists. In both cases the UK normally gives a credit for the foreign tax. Under the unilateral rules, the credit cannot exceed the UK tax on that foreign income. If a treaty caps the foreign rate, only tax up to that cap counts as relievable. Any excess can usually be reclaimed from the foreign tax authority.

The foreign income goes into the UK computation at its gross amount, before foreign tax. The credit is worked out source by source. Excess foreign tax on one source cannot be set against spare UK tax on another. For individuals, unused foreign tax is simply lost. Capital gains work the same way: the credit is the lower of the foreign tax on the gain and the UK CGT on that gain.

Non-residents are different. They are taxed only on UK-source income, such as UK rent or UK employment duties. Certain income is 'disregarded', for example UK savings interest and dividends. For these, the tax already deducted at source is generally the end of the liability. UK gains are generally outside the net for non-residents, except gains on UK land, which are covered in the CGT topics.

The personal allowance is not automatic for a non-resident. It is available to residents. A non-resident gets it only in a qualifying category. The main ones are UK and EEA nationals, residents of the Isle of Man or Channel Islands, Crown servants and, in some cases, people who left the UK for health reasons. A treaty non-discrimination clause can also give entitlement. Always check which category applies before you use the £12,570.

Key rules to remember

Credit relief limit: Credit = lower of (foreign tax suffered; UK tax on that foreign income); Work it out separately for each source of income or gain. Excess foreign tax is not carried forward or across to another source.
UK tax on the foreign income: UK tax on foreign income = total UK tax with the income − total UK tax without it; Include the foreign income gross. It is the top slice within its income type, so it normally takes the marginal rate.
Net UK tax payable: UK tax liability − DTR credit; Credit relief cannot create a repayment of UK tax.
Personal allowance: £12,570, reduced by £1 for every £2 of adjusted net income above £100,000; It is nil when adjusted net income is £125,140 or more. Non-residents get it only if they are in a qualifying category.
Income tax rates: Basic band £37,700 at 20%; higher rate to £125,140 at 40%; additional rate 45%; Normal rates are used for the non-savings income in the examples. Dividend and savings rates differ.
CGT rates: 18% in the lower band, 24% in the higher band; annual exempt amount £3,000; The same lower-of rule applies to foreign tax on gains.

How to solve Double Tax Relief and Non-Resident Allowances questions

Use this order for any question on DTR or non-resident taxation. It keeps you on the marks and shows the professional judgement the examiner wants.

1Establish residence first, using the statutory residence test result if given. Residents are taxed on worldwide income; non-residents only on UK-source income.
2List each source of income or gain separately, with its country, its gross amount and the foreign tax suffered. Check whether a treaty applies and whether it caps the foreign rate.
3For a resident, build the full UK computation including the foreign income gross. Apply the personal allowance and the bands in the right order.
4Work out the UK tax on each foreign source by comparing tax with and without it. This is the ceiling for the credit.
5Give the credit as the lower of foreign tax (limited by any treaty cap) and UK tax on that source. Say clearly what happens to any excess.
6For a non-resident, decide on personal allowance entitlement by category, then tax the UK income. Check whether any income is disregarded.
7Finish with the net UK tax, and one sentence of advice, for example reclaiming excess foreign tax or the effect of losing the allowance.

Quickest way: Lower-of test, source by source

When to use it: Use this when the question gives the UK computation or when time is short and you only need the credit.

Write down gross foreign income and foreign tax for each source.
Find the marginal UK rate on that income from the taxable income stack. Multiply, or use the with-and-without difference if the income straddles a band.
Compare with the foreign tax. The smaller figure is the credit.
Deduct the total credits from the UK tax. Do not let the net go below zero.
For non-residents, check the nationality or residence category first. If none applies, the allowance is nil and you tax the UK income from the first pound.

Common mistakes in Double Tax Relief and Non-Resident Allowances

Deducting the foreign tax in full without comparing it with the UK tax.
Students remember that foreign tax gets relief and forget the ceiling.
Fix: Always write 'lower of' and show both figures. The credit can never exceed the UK tax on that income.
Including foreign income net of foreign tax in the UK computation.
The figure given is often the cash received.
Fix: Gross it up to the amount before foreign tax. UK tax is charged on the gross income and the foreign tax is then credited.
Pooling several foreign sources into one credit calculation.
It feels quicker.
Fix: Compute the credit source by source. A high foreign rate on one source cannot absorb spare UK tax on another.
Giving every non-resident the £12,570 personal allowance.
Students treat the allowance as universal.
Fix: Check for a qualifying category, such as UK or EEA national, Isle of Man or Channel Islands residence, Crown servant or a treaty clause. If none applies, give nil.
Taxing a non-resident on worldwide income.
Students mix up the residence and source rules.
Fix: Non-residents are taxed only on UK-source income. Overseas income is outside the UK charge.
Ignoring the treaty cap on the relievable foreign tax.
The question gives only the foreign tax actually paid.
Fix: If the treaty limits the source country's rate, only tax up to that rate is creditable. The rest is reclaimed from the foreign authority.

Worked examples

Example 1

Priya is UK resident. She has UK trading profits of £50,000 and gross overseas rental income of £10,000, on which she paid £4,500 foreign tax. There is no treaty. Compute her UK income tax after unilateral relief. Treat all income as non-savings income and use the 2025/26 rates.

Show the solution

Total income = £50,000 + £10,000 = £60,000. Personal allowance £12,570, so taxable income = £47,430.
Tax with the foreign income: £37,700 × 20% = £7,540; £9,730 × 40% = £3,892. Total £11,432.
Tax without the foreign income: £50,000 − £12,570 = £37,430, all in the basic band. £37,430 × 20% = £7,486.
UK tax on the foreign income = £11,432 − £7,486 = £3,946.
Credit = lower of foreign tax £4,500 and UK tax £3,946 = £3,946.
Net UK tax = £11,432 − £3,946 = £7,486. Excess foreign tax of £554 (£4,500 − £3,946) gets no UK relief.

Answer: Net UK income tax is £7,486. The credit is £3,946 and £554 of the foreign tax is unrelieved in the UK.

Example 2

Hans is a German national, not UK resident. He has UK rental profits of £30,000 for 2025/26 and no other UK income. Compute his UK income tax. Then show the effect if he had no entitlement to the personal allowance.

Show the solution

Hans is non-resident, so only UK-source income is taxable. The rental profit is UK-source.
Hans is a national of an EEA state, so he falls into a qualifying category and gets the personal allowance of £12,570.
Taxable income = £30,000 − £12,570 = £17,430. This is within the £37,700 basic band.
Tax = £17,430 × 20% = £3,486.
Without the allowance, tax = £30,000 × 20% = £6,000. The extra cost is £2,514 (£12,570 × 20%).
Note: whether Germany also taxes the rent depends on the treaty. Any relief for that is a matter for Germany, because he is not UK resident.

Answer: With the personal allowance, Hans's UK tax is £3,486. Without it, the tax would be £6,000, which is £2,514 higher.

Exam tips

Show 'lower of' with both figures every time. Marks go to the comparison, even if one figure is wrong.
State the residence status in your first line. It decides the whole scope of the answer.
If the question says a non-resident has no personal allowance, accept it. If it is silent, state the category test and decide.
Write a short advice line, for example that excess foreign tax can be reclaimed abroad or that a treaty may cap the rate. This earns professional skills marks.
Use the tax tables supplied for rates and bands. Do not rely on memory for figures such as £37,700 or £12,570.

Practice questions from Income tax: the scope of income tax, residence and overseas aspects

Double Tax Relief and Non-Resident Allowances in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Double Tax Relief and Non-Resident Allowances: frequently asked questions

What is the difference between unilateral relief and treaty relief?

Unilateral relief is given under UK law whether or not there is a treaty. Treaty relief comes from the agreement between the UK and the other country. A treaty may exempt the income or cap the foreign tax rate, which also limits the foreign tax the UK will credit.

How do I calculate double tax relief for income tax?

Include the gross foreign income in the UK computation. Find the UK tax on it, which is the tax with the income less the tax without it. The credit is the lower of that figure and the foreign tax suffered. Do this for each source separately.

Does a non-resident get the UK personal allowance?

Not automatically. The allowance is available to residents and to non-residents in qualifying categories, such as UK or EEA nationals and Crown servants. A treaty clause may also give entitlement. If none applies, the allowance is nil.

Is there double tax relief for capital gains tax?

Yes. If a gain is taxed abroad and in the UK, the credit is the lower of the foreign tax on the gain and the UK CGT on that gain. The method is the same as for income.