What Are Double Taxation Treaties? A UK Guide
Paying tax once is enough – so what happens when you earn income abroad? Without safeguards in place, you could be taxed twice: once by the UK and again by the country where the income originates. That’s where double taxation treaties come in.
In this post, we explain what double taxation treaties are, how they work, and what they mean for UK individuals and businesses with overseas income.
What Is Double Taxation?
Double taxation happens when the same income is taxed by two different countries. This can significantly reduce an individual’s or company’s net income – especially if there are no mechanisms in place to avoid or relieve the duplicated tax burden.
Double taxation most commonly affects:
- UK residents who earn income overseas – such as dividends, interest, rental income, or employment income earned abroad
- UK-based businesses trading or investing internationally – especially if the country they operate in has withholding taxes or local corporate taxes
- Expats who are UK tax residents – and also earn income from their country of origin or other foreign sources
Why It Matters
Without appropriate tax treaties or relief schemes in place, these individuals and companies could end up paying tax twice on the same income: once in the country where the income is generated, and again in the UK where they are tax resident.
To prevent this, the UK has entered into Double Taxation Agreements (DTAs) with many countries. These treaties are designed to ensure that you don’t pay more tax than necessary and often allow you to claim tax relief or a tax credit for foreign taxes already paid.
You can view the full list of agreements and countries on the official HMRC Double Taxation Treaties page.
What Is a Double Taxation Treaty?
A Double Taxation Treaty (DTT)—also known as a double tax agreement (DTA) – is a formal legal agreement between two countries that outlines how income and gains should be taxed when they could be subject to tax in both jurisdictions.
The primary purposes of these treaties are to:
- Avoid double taxation – ensuring that the same income isn’t taxed twice
- Clarify tax residency – particularly important for individuals or businesses with ties to more than one country
- Encourage cross-border trade and investment – by reducing tax uncertainty and providing tax relief where appropriate
How It Works
A double taxation treaty typically assigns taxing rights to one country or splits them between both, depending on the type of income – such as employment income, dividends, interest, pensions, or capital gains.
For example, a DTT might specify that:
- Employment income is taxed only in the country where the work is physically carried out
- Dividends paid by a company in one country to a resident of the other may be taxed in both, but at a reduced rate
- Pensions are taxable only in the recipient’s country of residence
The UK’s Treaty Network
The UK has one of the widest double taxation treaty networks in the world, with over 130 agreements in force. These treaties help UK residents and companies reduce or eliminate foreign tax liabilities and provide a legal basis for claiming tax relief or credits.
Want to see if your country has a treaty with the UK?
Check the official HMRC Double Taxation Treaties list.
Example:
Let’s say you live in the UK but earn rental income from a property in Spain. The UK-Spain tax treaty determines how this income should be taxed. Typically, Spain (where the property is located) has the primary taxing right, but the UK allows a foreign tax credit so you’re not taxed twice.
Relief Under a Double Taxation Treaty
Double taxation treaties don’t just set out who has the right to tax specific types of income – they also provide mechanisms to prevent individuals and businesses from being taxed twice on the same earnings.
There are two main types of relief available under these treaties:
- Exemption Method
Under this approach, one country agrees not to tax specific income, leaving the taxing rights solely to the other country. For example, if you work in a country with a DTT and the treaty states your salary is only taxable there, the UK would exempt that income from UK tax (assuming you meet the criteria).
- Foreign Tax Credit Method
If both countries have the right to tax the income, the UK usually allows you to claim a tax credit for the foreign tax you’ve already paid. This credit is then set against your UK tax bill, reducing the risk of being taxed twice. The credit is typically limited to the amount of UK tax that would otherwise be due on that same income.
Note: You can’t claim both exemption and a credit for the same income – only the method specified in the relevant treaty applies.
