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Foreign Tax Credit – New HMRC Guidance



Foreign Tax Credit Relief (FTCR) is an essential tool for individuals who earn income abroad but reside in the United Kingdom. It exists to prevent double taxation of the same income. However, HMRC has identified frequent mistakes in credit claims and has made it clear that enforcement is being strengthened.


In addition, HMRC has begun sending letters to high-income taxpayers who used FTCR in their 2023/24 tax return, highlighting the correct criteria for its use and advising caution when applying the relief in the next Self Assessment (2024/25).



  1. Why is HMRC’s alert important?


Many people use FTCR without checking whether they are actually eligible. According to HMRC, common errors include:


  • Claiming the credit before the tax has actually been paid in the source country;

  • Applying the relief to income that is already exempt in the UK;

  • Failing to provide evidence of tax paid abroad.


These mistakes can lead to compulsory corrections, loss of the tax benefit, financial penalties, or in more serious cases, formal investigations by HMRC.



  1. Letters sent by HMRC: what you need to know


The correspondence is being sent to taxpayers who declared foreign tax and claimed FTCR, and it is divided into two types:


  1. Letter 1 – For those who declared foreign employment income, such as salaries paid by Brazilian companies;

  2. Letter 2 – For those who applied FTCR to non-employment income, such as pensions, dividends, rental income, interest, or royalties.



  3. Who should pay attention?


Taxpayers should be particularly cautious if they:


  • Live in the United Kingdom and earn income in Brazil (such as rental income, dividends, interest, or pensions);

  • Use FTCR to reduce their UK tax liability.


It is crucial to ensure that all rules are being followed correctly.



  1. How to avoid problems?


For the 2024/2025 Self Assessment:


  • Confirm that the tax has in fact been paid abroad;

  • Check whether the type of income is eligible for credit;

  • Consult the UK–Brazil double tax treaty.


IMPORTANT:

→ The treaty is not yet in force; it is still pending approval in Brazil.

→ However, unilateral relief may still be available.


  • Also remember to keep documentation that proves tax payments made abroad.



At Mosaico Tax, we help UK tax residents with foreign income navigate HMRC’s rules safely. Book a consultation to receive a tailored service proposal.


The information contained in this post is provided for informational purposes only and should not be interpreted as legal advice. This blog does not establish an accountant/attorney/client relationship and does not replace personalised guidance from a qualified professional.


 
 
 

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