Double Tax Treaties: What They Are and Why They Matter
Introduction to Double Tax Treaties
Double tax treaties (also known as Double Taxation Agreements/DTAs) are formal arrangements between two countries that aim to prevent individuals and businesses from being taxed twice on the same income. As global mobility and cross-border trade continue to grow, these treaties play an increasingly vital role in simplifying international tax compliance, encouraging foreign investment, and ensuring fair taxation between jurisdictions.
Double tax treaties allocate taxing rights between countries.
For example, a treaty may specify whether income such as dividends, royalties, employment income, pensions, or capital gains should be taxed in the country where the income arises or where the recipient resides, or both, with relief given in the residence country. Treaties often define ‘permanent establishment’ thresholds to determine when a foreign company becomes liable for tax in the other country.
In addition to clarifying who gets to tax what, DTAs provide mechanisms for tax relief. A UK resident earning income in a treaty country might be exempt from tax in the UK on that income or may be eligible to claim a credit for tax paid abroad, depending on the treaty provisions. These agreements typically also include dispute resolution mechanisms and clauses that allow for the exchange of tax information between countries, helping to prevent tax evasion and promote transparency.
The UK currently has over 130 double tax treaties in force, covering most of its major trading partners. These treaties are essential for both expatriates and multinational businesses seeking clarity and consistency in their tax affairs.
UK/India Social Security Agreement
A recent development in international tax cooperation is the UK/India Double Contributions Convention (DCC), which complements the existing tax treaty between the two nations. Signed in 2025 as part of the wider UK/India Free Trade Agreement, the DCC is a social security coordination agreement designed to prevent individuals and their employers from having to contribute to two social security systems at the same time during temporary cross-border assignments.
Under domestic rules, workers posted from the UK to India (and vice versa) could previously become liable for contributions in both countries after the first 52 weeks of their assignment. The DCC aims to eliminate this dual liability for assignments of up to three years.
Once in force, which is expected by mid-2026, the agreement will allow Indian professionals posted to the UK to continue contributing to India’s Employees’ Provident Fund (EPF), provided they obtain a Certificate of Coverage from Indian authorities. In turn, UK-based employees sent to India will remain under the UK’s National Insurance system. After 36 months, local social security obligations resume in the host country from day one.
Importantly, the DCC is limited in scope to contribution liability; it does not affect eligibility for benefits or pension aggregation. It also does not alter immigration or visa rules. However, the financial and administrative relief it offers is significant. For some, the savings on employer contributions could amount to tens of thousands of pounds per employee over the three-year exemption period.
Conclusion
Whether you’re an international assignee, an expat tax advisor, or a business planning overseas expansion, understanding the interaction between double tax treaties and social security agreements like the UK/India DCC is essential.
These instruments reduce complexity and cost, while offering legal clarity for cross-border operations. As more such agreements come into effect, it’s critical to seek up-to-date advice to ensure full compliance and to maximise relief available under treaty provisions. If ETC Tax can help in any way, please get in contact with us.
Maybe you’ve been offered a job overseas, maybe you’re dreaming of sunnier skies and relaxing mornings, or maybe it’s just time for a change.
Whatever your reason, going to live in another country is exciting, but before you get too carried away with house-hunting, you do need to consider the tax position.
At ETC, we understand that tax isn’t exactly the ‘fun’ part of moving abroad, but ensuring you get it right now could save you a lot of stress (and potentially a lot of money) further down the line.
Here’s the bit most people miss!
A lot of people assume that once they move overseas, they’re no longer UK taxpayers. Easy, right? You live somewhere else, so you stop paying tax in the UK.
Unfortunately, that’s not exactly how it works.
Whether or not you still owe UK tax depends on something called the Statutory Residence Test. This test looks at all sorts of things, how many days you spend in the UK, where you live, where you work, and even whether you’ve got close family here. And sometimes, you can still be classed as a UK tax resident even when you think you’ve left for good.
In other words, it’s not enough to just get on a plane and start a new life somewhere else. You need to make sure HMRC agrees you have actually left.
It’s not just about where you live, it’s about your money too
Leaving the UK doesn’t mean you leave your financial life behind. You might have a rental property here, a business, some investments, or a pension. All of these things can continue creating tax obligations even while you’re sipping cocktails overseas.
In some cases, the tax treatment of your income changes the moment you become non-resident. In others, you might still be on the hook for UK tax even if you’re paying tax in your new country too. That’s where double tax treaties can help but only if you understand how to use them properly.
And what about capital gains? Again, you need to consider where the asset is situated, which isn’t always clear cut. Also, if the move abroad is only temporary one, you could find yourself in a tricky CGT position if you do return to the UK.
This is without mentioning the potential taxes that may apply in the other jurisdiction. That’s why it’s so important to plan your move before you go, not after the fact.
The timing really matters
Here’s the truth, most of the best tax planning opportunities happen before you move.
You might be able to sell assets while you’re still UK resident. You might want to restructure ownership of a business or property. You might need to think about gifts, trusts, or moving money across borders.
But once you’ve left? Many of those doors close.
And it’s not just about income and gains. Leaving the UK affects things like National Insurance contributions, state pensions, and inheritance tax too.
So, what help do you actually need?
This is where good advice makes all the difference. You don’t need a suitcase full of tax textbooks, you just need someone who can help you work out what your move means for your tax position, and how to structure things in a way that works for your new life.
That might mean making sure you clearly break UK residency. It might mean managing income across borders or making sure you don’t end up paying tax twice.
Next Steps
At ETC Tax, we work with clients at every stage of their international journey whether you’re in the early dreaming phase or already planning your goodbye party. We’ll walk you through the key decisions, flag the potential traps, and help you get everything lined up, so your big move goes as smoothly as possible.
If you are considering a potential move, feel free to get in touch today.
The recent announcements of tax increases in the October 2024 Budget have continued to spark a rise in the number of enquiries we receive from individuals considering relocating abroad.
One of the questions we often get asked by clients looking for advice is what the preferred destinations are, or seem to be, for people wanting to leave the UK.
Let’s take a look….
Whilst countries in Europe, like Portugal and Spain have traditionally been top of the list, following the abolition of the Non-Habitual Resident (NHR) Tax Regime (which was officially discontinued by the Portuguese government in 2023) we have definitely seen a reduction in popularity of Portugal as a destination of choice.
Unfortunately, Spain, which has proved popular with clients, seems to be following suit following the announcement that the Golden Visa programme (an immigration programme that allows individuals to gain residency in a country by making an eligible investment there), which was the preferred route to residency in Spain, is also to be abolished by Spain on 3rd April 2025.
Indeed it appears that even staying in the UK, but living part of the year in Spain may not be an option now either, following the recent Spanish government announcement (13th January 2025) that it plans to introduce a tax of up to 100% on properties purchased by non-residents from outside the EU. [1]
So what options remain for those wishing to relocate abroad?
In a recent survey of professional advisers with internationally mobile high net-worth clients, the top destinations for those leaving the UK were Dubai (no income tax – what more is there to say!!), Italy (which as well as having a relatively attractive tax regime is doing a lot at the moment to encourage foreign investment and relocation[2]), and the “old favourites” like Malta, Cyprus, the Isle of Man and the Channel Islands. We also find we speak to quite a number of clients interested in moving to Barbados (well if the low tax rates aren’t appealing enough the palm trees and beaches certainly will be!).
A quick google suggests a number of different countries topping the list, like Australia, the USA , and France. However, with many of the clients we speak being driven by a desire, not for cultural or lifestyle changes, but to reduce their overall tax burden, these countries are unlikely to popular destinations for UK expats motivated by tax planning (…certainly not given that the US has one of the most complex and all-encompassing tax regimes of any country in the world!!).
Whilst it is not our job to advise clients on which country might suit their needs (whether cultural, family, lifestyle or tax/financial) we find ourselves having regular conversations with clients who know they want to leave the UK but are open to where they go, and can help introduce clients to advisers in other countries who can advise them on the local tax position.
How we can help
Those moving themselves, or their businesses, overseas face unique tax challenges.
At ETC Tax, we have specialists in global mobility tax issues who can advise employees, employers and/or business owners on their UK tax position when leaving the UK as well as help advise on their ongoing compliance and reporting obligations.
Our advice covers key areas such as residence, domicile[3], rental income from UK properties or other UK-sourced income, and non-resident capital gains tax. We also specialise in advising non-UK domiciled individuals on their UK tax position and planning for tax-efficient remittance of funds to the UK.
Finally, we can also provide support with UK tax returns for those with overseas aspects to their tax affairs, remittance basis claims, and overseas workday relief applications.
Next Steps
Whether you’re an individual navigating cross-border tax issues, a business operating internationally or a professional adviser assisting clients with these issues, feel free to get in touch to discuss things in more detail.
[1] Although the finer details about the implementation of this policy or the timeline for it are unclear, it is being compared to policies that are already in place in the likes of Canada and Denmark.
[2] Italy rolled out the little-known incentive in 2017, which has proven particularly attractive for high-net worths and super high-net worths. The incentive means that in exchange for paying an annual fee of €100,000 (£87,000), those who become resident in Italy are entirely exempt from paying tax on income generated overseas.
[3] We can also advise on the upcoming changes to the existing domicile rules (from 6 April 2025) and provide advice and planning in relation to those changes.
Prior to 2013 it was fairly common for an offshore company (Offco) to hold UK residential property. Whilst rental income was taxable, the company would not be liable to capital gains tax (CGT) nor would the non-domiciled shareholders be liable to IHT.
Even taking into account the high costs of running an Offco, this was a cost effective way of arranging property ownership.
Issue
Following various changes in legislation over the years, the company is now also liable to capital gains tax and the shares subject to Inheritance Tax. There are no advantages to having an Offco and the client wanted advice on transferring ownership to a UK company tax efficiently and to save significant ongoing admin costs.
How we solved it
We advised the client to set up a new UK limited company and for the Offco to become UK resident. By complying with the relevant legislation the properties could be transferred to the UK company with no CGT or SDLT costs.
The outcome
The overseas shareholders now own a UK company owning the properties at their original base cost and the shareholders have considerably less annual admin costs.
Note however the value of the shares is potentially liable to UK IHT, regardless of the shareholders’ domicile status.
Next Steps
If you have a case similar to the above or would like more information on re-domicile of a company please get in touch.
Starting next year, non-domiciled individuals (non-doms) in the UK will face a tougher tax regime as Labour aims to eliminate what they see as an outdated tax benefit and reform inheritance tax (IHT) liabilities.
Labour’s Plans…
Labour plans to enhance the Conservative proposals from the March Budget by implementing stricter transition rules and introducing a new residence-based system for IHT, effective from 6 April 2025. The full details of the rebasing dates will be disclosed in the autumn Budget.
The New System
The new system will shift from a domicile-based IHT approach to one based on residence, targeting those who have been UK residents for the past 10 years. This change will affect the scope of property subject to UK IHT for both individuals and trusts, and will only apply to deaths occurring after the new rules take effect, avoiding retrospective application.
Four-year foreign income and gains (FIG) regime
The Labour government will not continue the transitional measures announced by former Conservative Chancellor Jeremy Hunt, such as the 50% tax reduction on foreign income for individuals losing access to the remittance basis in the first year. Instead, they will implement a four-year foreign income and gains (FIG) regime, offering 100% relief on FIG for new UK arrivals in their first four years of tax residence, provided they have not been UK tax residents in any of the previous ten years.
UK residents ineligible for the four-year FIG regime will be subject to capital gains tax (CGT) on foreign gains as usual. Remittance basis users can rebase foreign capital assets to their value on a specified date for CGT purposes when they dispose of them. This rebasing date will be confirmed in the upcoming Budget.
April 2025
As of April next year, income and gains within settlor-interested trust structures will lose tax protection. A new temporary repatriation facility (TRF) will be introduced, allowing individuals who have previously used the remittance basis to remit FIG accrued before 6 April 2025 at a reduced tax rate for a limited time. The specifics of this will be detailed in the Autumn Budget.
Furthermore, there will be a review of offshore anti-avoidance legislation, including the transfer of assets abroad and settlement rules, to clarify and simplify the current laws. Any changes resulting from this review are not expected before April 2026.
If you have any questions on how your tax liabilities will be affected by the new labour government then please get in touch. Our team of experience tax advisers will be able to guide through proposed changes.
Non-Domiciled Investment Banker Loses Appeal Against £675,000 Tax Bill Over Director Loans
Mr X, originally from Spain and residing in Italy, faced a significant tax bill from HMRC after investing £1.5 million of his foreign income into his UK-based company.
The investment was intended to qualify for business investment relief, exempting it from tax. Business Investment Relief (BIR) is a potentially valuable tax relief for UK taxpayers, particularly non-domiciled individuals (non-doms), who have used or are currently using the remittance basis. BIR enables these remittance basis users (RBUs) to invest their offshore income and gains in the UK without incurring taxes on those remittances. In this particular case, however, complications arose when he used a director’s loan account for personal expenses. A director’s loan is money withdrawn from your company’s accounts that does not qualify as salary, dividends, or legitimate expenses.
Mr X accumulated £75,000 in personal expenses through a director’s loan account, which included costs such as hiring private jets, an iTunes subscription, and gifts for his wife. HMRC viewed this as an “extraction of value” in breach of the remittance basis. Consequently, HMRC denied the business investment relief for the entire £1.5 million and issued a tax bill of £675,000.
In response to the tax bill, Mr X appealed, arguing that the legislation should be interpreted as requiring the net extraction of value to breach the rule. It was claimed that the director’s loan was provided in the ordinary course of business. HMRC maintained that any extraction of value, not just net, constituted a breach.
A tribunal judge sided with HMRC, ruling that the legislation did not specify net extraction of value. The tribunal found that Mr X had received value in the ordinary course of business and that personal use of company funds was exactly what the extraction of value rule was designed to prevent. Despite the client’s claims of following legal advice, the appeal was dismissed, and he was held liable for the full £675,000 tax bill.
