Simon Roue and Laura Sant explain the Double Tax Treaty system.

The purpose of the Double Tax Treaty is to prevent double taxation of individuals who move between and earn income from more than one country. However, the rules of Double Tax Treaties vary between different countries and can be complicated to navigate. If you do not take advice, you could risk paying too much or too little tax.

One of the biggest misunderstandings that our clients have is to assume that if they are paying tax on income in another country with which the UK has a double tax treaty agreement, then they do not need to pay tax in the UK. This is not necessarily the case. Even if a double tax treaty exists, it is possible that both countries will require tax to be paid on the same source of income, wherever it is sourced from. 

Here’s how it works.

A double tax treaty between two countries will decide:

• which country that an individual is classified as resident of
• which sources of income are taxed in which country

It may not always be obvious which country will tax certain sources of income. 

For example, pension income will normally only be taxed in one country, but it could either be the country of residence or the country which is the source of that income. 

Rental income, however, is usually taxable in both countries. For example, with rental income, the country where the property is located will have primary taxing rights, but the other country may also charge tax if they deem insufficient tax has been paid according to their tax rules. The amount of tax needed to be paid can vary depending on where the property is located and the tax laws in the two countries between which the double treaty exists. 

Tax obligations between countries where double tax treaties exist can be complicated and can result in an individual paying the wrong amount of tax leaving them vulnerable to overpaying tax or tax penalties. 

Double Tax Treaties are not straightforward, so, if you spend time between multiple countries and have income sources from different places, we recommend that you listen to our podcast and also seek advice about your particular tax obligations.

Do not risk paying the wrong amount of tax. Please get in touch. As experts in UK tax, with many clients living abroad, we are used to the different tax treaty rules and can help you to understand what your tax obligations are. By undertaking Double Tax Treaty analysis, we can help you pay the right tax in the right place at the right time. 

Contact LSR Partners today to speak with our expert team and pay the right tax, in the right place, at the right time.