Guernsey Tax on Rental Property. Are we Paying Tax Twice?

Hilarypaul

My partner used to live in Guernsey and now lives and pays tax in the UK. She retains a property in Guernsey and pays Guernsey Tax on it every year.
The amount she earns on the flat, minus the Guernsey Tax, is also declared on her UK Tax Form under Foreign Income and is included in her taxable total. It appears to me that she is paying tax twice on this income.
Is that right?

Note for many years a financial advisor has been filling out my partners UK Tax Form and I have recently taken it over, since it is the same every year. Many times I have raised this with the financial advisor and she denies that we are paying twice but is unable to explain it to me.

Dazed_and_C0nfused

Do you mean you are effectively deducting the tax paid in Guernsey as an expense and declaring the net amount on the Self Assessment return?

And no foreign tax credit is being claimed?

Jeremy535897

[Deleted User] said:

purdyoaten2 said:

There is no other correct method.

Are you sure about that? 

I thought that the way you describe is normally the best way of claiming relief (s18 TIOPA) but that the way the OP implies (foreign tax as an expense) can be elected for (s27) so that relief is given as an expense (s112).  Making that election is generally worse, but can be useful if you have, for example, losses.

Spot on, assuming that the Guernsey tax paid is the proper amount chargeable under Guernsey income tax rules.

Hilarypaul

Dazed_and_C0nfused said:

Do you mean you are effectively deducting the tax paid in Guernsey as an expense and declaring the net amount on the Self Assessment return?

And no foreign tax credit is being claimed?

Much thanks for your reply.
I suppose that is what j am doing. It still seems that I am being taxed twice, first by Guernsey and secondly by the UK. Eg on taxable sum of £10,000, I am taxed 20% by Guernsey  = £2000, then 20% on remaining £8000  by UK = £1,600. So total tax of £3600 on £10,000, equivalent to 36%.
Have I got this right and is it correct, seems a bit harsh.

Hilarypaul

Jeremy535897 said:

[Deleted User] said:

purdyoaten2 said:

There is no other correct method.

Are you sure about that? 

I thought that the way you describe is normally the best way of claiming relief (s18 TIOPA) but that the way the OP implies (foreign tax as an expense) can be elected for (s27) so that relief is given as an expense (s112).  Making that election is generally worse, but can be useful if you have, for example, losses.

Spot on, assuming that the Guernsey tax paid is the proper amount chargeable under Guernsey income tax rules.

Thanks for response.
Hopefully Guersey tax correct.
5 years ago my partner notified Guersey tax about her rental income, since then they have simply sent a tax bill every year, with no explanation or breakdown, just a sum to paid. Last week they sent her individual tax forms for the last 4 years to be completed. Actually i think she has been overpaying because she has not raised rent by inflation, while I think the tax people assume she has. 
Fingers crossed.

Delburn

Hilarypaul said:

Dazed_and_C0nfused said:

Do you mean you are effectively deducting the tax paid in Guernsey as an expense and declaring the net amount on the Self Assessment return?

And no foreign tax credit is being claimed?

Much thanks for your reply.
I suppose that is what j am doing. It still seems that I am being taxed twice, first by Guernsey and secondly by the UK. Eg on taxable sum of £10,000, I am taxed 20% by Guernsey  = £2000, then 20% on remaining £8000  by UK = £1,600. So total tax of £3600 on £10,000, equivalent to 36%.
Have I got this right and is it correct, seems a bit harsh.

I have not looked at the details for Guernsey, but the general principle is you have a choice between:

Pay UK tax on (Foreign Income - Foreign tax)
Pay UK tax on the full Foreign Income and receive a tax credit for the amount of foreign tax that is properly due, subject to the tax credit being no greater than the UK tax due.

In most, but not all, cases the second option is preferable.  Their should be an option in the Foreign Tax section of the UK tax form "E To claim Foreign Tax Credit Relief, put ‘X’ in the box" to select the second option.

Using your example figures, assuming the 20% is the proper amount payable in Guernsey, assuming the tax payer is clearly a 20% UK tax payer and assuming no complexities around expenses (agents fees, maintenance, interest etc).

Option 1 is as you describe.
Option 2 is UK tax = Foreign Income * 20% - Foreign Tax Credit = 10,000 * 20% - 2,000 = 0. So no UK tax due.

So in this example it would be preferable to choose to claim the Foreign Tax Credit Relief.  I do not know if there are any details of Guernsey tax, UK property tax etc, which would mean the tax credit does not apply to your partner's situation.

Hilarypaul

Delburn said:

Hilarypaul said:

Dazed_and_C0nfused said:

Do you mean you are effectively deducting the tax paid in Guernsey as an expense and declaring the net amount on the Self Assessment return?

And no foreign tax credit is being claimed?

Much thanks for your reply.
I suppose that is what j am doing. It still seems that I am being taxed twice, first by Guernsey and secondly by the UK. Eg on taxable sum of £10,000, I am taxed 20% by Guernsey  = £2000, then 20% on remaining £8000  by UK = £1,600. So total tax of £3600 on £10,000, equivalent to 36%.
Have I got this right and is it correct, seems a bit harsh.

I have not looked at the details for Guernsey, but the general principle is you have a choice between:

Pay UK tax on (Foreign Income - Foreign tax)
Pay UK tax on the full Foreign Income and receive a tax credit for the amount of foreign tax that is properly due, subject to the tax credit being no greater than the UK tax due.

In most, but not all, cases the second option is preferable.  Their should be an option in the Foreign Tax section of the UK tax form "E To claim Foreign Tax Credit Relief, put ‘X’ in the box" to select the second option.

Using your example figures, assuming the 20% is the proper amount payable in Guernsey, assuming the tax payer is clearly a 20% UK tax payer and assuming no complexities around expenses (agents fees, maintenance, interest etc).

Option 1 is as you describe.
Option 2 is UK tax = Foreign Income * 20% - Foreign Tax Credit = 10,000 * 20% - 2,000 = 0. So no UK tax due.

So in this example it would be preferable to choose to claim the Foreign Tax Credit Relief.  I do not know if there are any details of Guernsey tax, UK property tax etc, which would mean the tax credit does not apply to your partner's situation.

Thank you Delburn.
It seems I must investigate the detail of Foreign Tax Credit Relief.
If it appears that my partner could have been claiming for the last few years then wonder if it can be recovered.
Think I should open a  conversation with HMRC, not sure if best by phone or letter.

Hilarypaul

Delburn said:

Hilarypaul said:

Dazed_and_C0nfused said:

Do you mean you are effectively deducting the tax paid in Guernsey as an expense and declaring the net amount on the Self Assessment return?

And no foreign tax credit is being claimed?

Much thanks for your reply.
I suppose that is what j am doing. It still seems that I am being taxed twice, first by Guernsey and secondly by the UK. Eg on taxable sum of £10,000, I am taxed 20% by Guernsey  = £2000, then 20% on remaining £8000  by UK = £1,600. So total tax of £3600 on £10,000, equivalent to 36%.
Have I got this right and is it correct, seems a bit harsh.

I have not looked at the details for Guernsey, but the general principle is you have a choice between:

Pay UK tax on (Foreign Income - Foreign tax)
Pay UK tax on the full Foreign Income and receive a tax credit for the amount of foreign tax that is properly due, subject to the tax credit being no greater than the UK tax due.

In most, but not all, cases the second option is preferable.  Their should be an option in the Foreign Tax section of the UK tax form "E To claim Foreign Tax Credit Relief, put ‘X’ in the box" to select the second option.

Using your example figures, assuming the 20% is the proper amount payable in Guernsey, assuming the tax payer is clearly a 20% UK tax payer and assuming no complexities around expenses (agents fees, maintenance, interest etc).

Option 1 is as you describe.
Option 2 is UK tax = Foreign Income * 20% - Foreign Tax Credit = 10,000 * 20% - 2,000 = 0. So no UK tax due.

So in this example it would be preferable to choose to claim the Foreign Tax Credit Relief.  I do not know if there are any details of Guernsey tax, UK property tax etc, which would mean the tax credit does not apply to your partner's situation.

Hi Delburn, I'm just revisting this subject and trying to talk to HMRC but got cut off after 40 mins of waiting.
Your option 2 seems to be the firm favorite, but bit confused by your example which ends as "So no UK tax due".
I assume you mean that the Foreign Tax payment is cancelled out by the credit but you still have to pay full UK tax on the £10,000, eg £2,000.

sheramber

Working on figures quoted above

On foreign income pages  show £10000 income and show foreign tax paid  £2000

HMRC will tax £10000 with tax due £2000 less  foreign tax paid  £2000 = tax due nil.

Hilarypaul

sheramber said:

Working on figures quoted above

On foreign income pages  show £10000 income and show foreign tax paid  £2000

HMRC will tax £10000 with tax due £2000 less  foreign tax paid  £2000 = tax due nil.

OK, i think i have got it at last.
Talked to a very helpful man at the UK Tax office this morning (after many hours on phone and cut offs)
He seemed to be giving me the same story.
Additionally he explained that there is an option to alter last years self assessment form on line but a more difficult procedure to alter previous years, we have 4 years of this error.
He also suggested that you can change tax form details on line and see how it changes the end calculation. You can play with this as much as you like, but DO NO SUBMIT until you are happy.
Looking forward to a few thousand rebate !!!!