Foreign tax credit relief

Foreign tax credit relief lets a UK resident set foreign tax paid on income or a gain against the UK tax on the same income or gain. The credit is the lower of the foreign tax (capped at any treaty rate) and the UK tax on that item, worked out source by source. Individuals claim it on the foreign pages of the Self Assessment return, normally within four years of the end of the tax year.

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Where does the relief come from?

There are two routes, both in Part 2 of the Taxation (International and Other Provisions) Act 2010 (TIOPA 2010):

Treaty relief. A double taxation agreement given effect under section 2 normally says the UK will give credit for tax the other country is allowed to charge. How treaties allocate taxing rights is covered in how double tax treaties work.
Unilateral relief. Where there is no treaty, or the treaty does not deal with the income, section 9 allows credit for foreign tax charged on income or gains arising in that territory, provided the tax corresponds to UK income tax, corporation tax or capital gains tax. State, provincial and municipal taxes can qualify.

Section 18 gives effect to either kind of credit by reducing the UK tax on the income or gain. HMRC’s International Manual notes that unilateral credit is not available where a treaty would have given relief for the tax (section 25), where the taxpayer is not UK resident (section 26), or where the taxpayer elects against credit (section 27) (INTM151060).

Before any credit, check whether the treaty removes double taxation altogether. If it gives the UK sole taxing rights, there should be no foreign tax to credit. If it gives the other country sole rights, there is no UK tax to relieve (HS263).

How much credit can you get?

The credit is the lower of:

the foreign tax paid on the item, but no more than the rate the treaty allows the other country to charge; and
the UK tax on that item.

Foreign tax above the treaty rate is not creditable in the UK. HMRC’s helpsheet HS263 gives the example of £100 of Spanish property income dividends with £20 of Spanish tax, where the treaty allows 15%. Only £15 is creditable; the extra £5 has to be reclaimed from the Spanish authorities.

The statute adds further limits. Section 33 restricts credit to what would have been payable had all reasonable steps been taken to minimise the foreign tax, such as claiming available foreign reliefs. Section 34 reduces the credit if a foreign tax authority later repays any of the tax to you or a connected person. And under section 31 the income is taxed in the UK gross, with no deduction for the foreign tax.

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How is the UK tax on an item measured?

For income tax, section 36 measures the UK tax on a source as the difference between your liability on total income and your liability with that source taken out. Where there are several sources, you take them one at a time in whichever order gives the greatest reduction in your liability.

HS263 works through a simple case for 2025 to 2026. Zoë has £48,000 of self employed profits and £4,000 of foreign interest, on which £300 of foreign tax was paid.

Step	Amount
UK tax on total income of £52,000	£8,032
UK tax without the foreign interest	£7,086
UK tax on the foreign interest	£946
Foreign tax paid	£300
Credit (lower of the two)	£300
UK tax payable	£7,732

Each source needs its own calculation. Two foreign dividends from different countries cannot be pooled into one figure. Because the order of removal changes the answer when income straddles tax bands, HS263 suggests treating the item with the highest rate of foreign tax as the income that bears the highest UK rate. It also says allowances and reliefs can be allocated in the way that maximises the credit. For how different kinds of income fall into the bands, see how savings and dividend income stack.

How does it work for capital gains?

The same lower of rule applies to each gain separately. An excess of foreign tax on one gain cannot be used against UK tax on another. To get the most credit, HS263 says the annual exempt amount and any losses should generally be set against UK gains first.

HS263’s example: Harry, a higher rate taxpayer, makes a £26,000 gain on a UK buy to let and a £7,000 gain on an overseas one in 2025 to 2026, paying £2,100 of foreign tax. Setting the £3,000 annual exempt amount against the UK gain leaves £23,000 taxed at 24%, which is £5,520. The UK tax on the overseas gain is £7,000 at 24%, which is £1,680. The credit is £1,680, the lower figure, so his total UK capital gains tax is £5,520. Current rates are on the capital gains tax rates page.

When is a deduction better than a credit?

Section 112 offers an alternative: reduce the foreign income by the foreign tax instead of claiming a credit. HS263 says this is generally only better where there is no UK liability, for example because of losses. Its example is Gemma, whose £19,000 trading loss wipes out her other income, including £9,000 of foreign interest that suffered £900 of foreign tax. A credit would be worth nothing, but deduction relief reduces the interest to £8,100, so less of the loss is used and more remains for another year. Section 112 sits under the heading of deduction where no credit is allowed, so in practice you elect against credit under section 27 for that income.

How and when do you claim?

Individuals record the foreign income or gain and the foreign tax on the foreign pages of the return (SA106) and enter the credit there. HMRC publishes working sheets with HS263 for income and for gains, and the white space on the main return can be used to explain the ordering. HS263 also confirms that someone who is not resident in the UK, the Isle of Man or the Channel Islands is not entitled to relief against UK tax.

Section 19 sets the time limit for income tax and capital gains tax claims: the fourth anniversary of the end of the tax year, or if later, 31 January following the tax year in which the foreign tax is paid. That second limb helps where foreign tax is settled late. For companies, the limit is four years after the end of the accounting period, or one year after the end of the period in which the foreign tax is paid, if later. A company’s credit is capped at the corporation tax rate applied to the income or gain under section 42.

If the foreign tax is later reduced, the credit becomes excessive. Section 80 requires you to notify HMRC within one year of the adjustment, with a penalty of up to the excess credit for failing to do so.

What are the common mistakes?

Claiming the full foreign withholding instead of the treaty rate, and never reclaiming the excess abroad.
Pooling several sources or gains into one calculation.
Deducting the foreign tax from the income and also claiming a credit.
Using the annual exempt amount against the foreign gain and so wasting credit.
Claiming unilateral credit for a foreign tax that does not correspond to income tax, corporation tax or capital gains tax.
Expecting a credit against the temporary repatriation facility charge, which HMRC confirms is not available.
Missing that a later foreign refund must be reported to HMRC.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.