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E6.416 Double tax relief by deduction

Foreign tax paid on income arising outside the UK, instead of being claimed as a credit, may be treated as reducing the foreign income assessable to UK tax¹. Relief by deduction can also apply to gains². Credit relief, where available, provides a significantly higher credit for the foreign tax paid, and will usually be the preferred option.

Where credit relief is not claimed, it is possible to deduct the foreign tax paid from foreign income or gain instead, treating the foreign tax paid as an expense. This means that only the net amount after tax is taxable in the UK³. No separate claim for deduction is required; it applies automatically where a claim for credit is not made.

This method of double tax relief is usually less tax efficient that claiming credit relief, however it may be appropriate in certain situations (see below).