Foreign Tax Credit Relief calculations on small income
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Klytaemnestra
Posts: 2 Newbie
in Cutting tax
I did search but couldn't find what I needed - apologies if the info is there and I missed it.
I am doing my tax return for 2017-18 and am stuck on the above section. I only returned to the UK as a resident in January, and earned very little up to 5 April. I understand that the principle is that you calculate what the tax would have been on your total income, then remove the foreign income, calculate what the tax would have been on the remainder, and claim tax relief only up to the amount that would have been due in the UK. (The trouble with this is that in my case, there would be no tax on the total as it is under the allowance limit, and no tax on the reduced amount, therefore the difference is zero; does this mean that one can only claim tax paid on foreign income if one earns over the tax allowance in that particular year? If so, this seems massively unfair. I am, however, assuming I've done something wrong.)
I am getting into a complete tangle with form HS263, and wonder if someone could please help me? Some of the boxes appear to refer to boxes which don't exist there!!
If it helps, I earned £818 in UK employment (upon which £29 was apparently paid in tax), £5 dividend income, and £5,048 in self-employed income in Germany, upon which I paid £1,010 in tax. The "allowance previously claimed", according to my (as yet uncompleted) online tax return, is £11,500 (I also don't understand where I previously claimed it).
I really didn't think it would be this complicated!
If anyone is able to help, I would be SO grateful.
I am doing my tax return for 2017-18 and am stuck on the above section. I only returned to the UK as a resident in January, and earned very little up to 5 April. I understand that the principle is that you calculate what the tax would have been on your total income, then remove the foreign income, calculate what the tax would have been on the remainder, and claim tax relief only up to the amount that would have been due in the UK. (The trouble with this is that in my case, there would be no tax on the total as it is under the allowance limit, and no tax on the reduced amount, therefore the difference is zero; does this mean that one can only claim tax paid on foreign income if one earns over the tax allowance in that particular year? If so, this seems massively unfair. I am, however, assuming I've done something wrong.)
I am getting into a complete tangle with form HS263, and wonder if someone could please help me? Some of the boxes appear to refer to boxes which don't exist there!!
If it helps, I earned £818 in UK employment (upon which £29 was apparently paid in tax), £5 dividend income, and £5,048 in self-employed income in Germany, upon which I paid £1,010 in tax. The "allowance previously claimed", according to my (as yet uncompleted) online tax return, is £11,500 (I also don't understand where I previously claimed it).
I really didn't think it would be this complicated!
If anyone is able to help, I would be SO grateful.
0
Comments
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Klytaemnestra wrote: »The trouble with this is that in my case, there would be no tax on the total as it is under the allowance limit, and no tax on the reduced amount, therefore the difference is zero; does this mean that one can only claim tax paid on foreign income if one earns over the tax allowance in that particular year? If so, this seems massively unfair. I am, however, assuming I've done something wrong.)
This is how it's meant to work.
"Foreign Tax Credit Relief", despite the name, isn't intended per se to refund you foreign tax; it's intended to neutralise the effects of double taxation. So if two countries both tax you on the same income, the FTCR is intended to bring you back to the position you'd have been in if you paid only one country's tax on that income - namely the country that charges the higher tax.
So because the UK doesn't tax you on any of this income, you're already in a position where you pay only the German tax - there's no FTCR because there's no double taxation.
It should perhaps be renamed "Double Taxation Relief" or something like that...0 -
Also: are you due a tax refund in Germany? I am very very far from an expert on German tax, but from what I could see, is the first €9k or so of income tax free?0
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Thank you so much for your reply. I had indeed misunderstood the intention of the tax relief, and shall look into the situation regarding a refund in Germany.0
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