Claiming Foreign Tax Credit Relief in the UK for US Tax Paid

Foreign tax credit relief in the UK lets a UK resident set US tax against the UK tax on the same income. The credit is the lower of the US tax the treaty allows and the UK tax on that income, claimed on the SA106 Foreign pages with an X in column E. Getting the number right depends on three caps, and most errors come from ignoring one of them.

Our guide to how double taxation relief works between the US and the UK explains which country taxes what first. Our SA106 foreign income guide walks the form box by box. This article sits between them: it is about the claim itself, the arithmetic HMRC applies, the limits that shrink the credit, and a worked example using 2025/26 rates, the return most people are completing now.

What is foreign tax credit relief in the UK?

Foreign Tax Credit Relief (FTCR) is the UK's way of stopping the same income being taxed twice in full. A UK resident is taxed on worldwide income, so a US dividend, US rental profit or US salary is taxable in the UK even when the US has already taxed it. FTCR gives a pound-for-pound credit for the US tax against the UK tax on that income.

The SA106 notes for 2025/26 set four conditions. You must be UK resident. The foreign tax must have been properly charged under US law, which HMRC says means you took reasonable steps, such as filing a US return, to claim the allowances and reliefs available there. The credit cannot exceed UK tax on the same item. And you cannot claim FTCR on income for which you claim relief under the four-year foreign income and gains (FIG) regime.

For US tax, the credit flows from Article 24(4) of the 2001 US/UK double taxation convention, which allows US tax "payable under the laws of the United States and in accordance with this Convention" as a credit against UK tax. Those last four words matter: US tax that the treaty did not permit is not creditable.

How much foreign tax credit relief can you claim? The three caps

The UK credit for US tax is the smallest of three figures. HMRC helpsheet HS263, Relief for foreign tax paid 2026, sets out the first two; the treaty adds the third for US citizens.

Cap one: the UK tax on that income

HS263 says the credit is the lower of the foreign tax paid, or allowed by the treaty, and the UK tax liability on the income or gain. The UK tax on an item is found by working out your total UK tax with the item and without it; the difference is the UK tax on that item. In effect the foreign income is treated as the top slice of your income, taxed at your highest rate.

Where you have several foreign sources, the order in which you treat them can change the total credit. HS263 includes an example where two orderings give different results, and the practical lesson is to test both and use the more favourable one.

Cap two: the treaty rate

The SA106 notes say that if a treaty states the other country can only tax income at a particular rate, and you paid more, "you must restrict your claim to FTCR to the rate specified in the DTA." Column C on the SA106 is defined the same way: the lower of the tax actually withheld and the credit allowed by the treaty.

The common case is US dividends. Article 10(2) of the treaty limits US tax on portfolio dividends to 15% (5% for a company holding 10% or more of the voting power). The IRS explains that dividends paid to a nonresident are withheld at 30% or a lower treaty rate, and that the treaty rate is claimed by giving the broker a Form W-8BEN. Without one, 30% comes off, but HMRC will still only credit 15%. The other 15% has to be reclaimed from the IRS.

The treaty can also cap US tax at nil. If the treaty gives the US no right to tax an item, the SA106 notes say you cannot claim FTCR and must claim relief in the other country instead.

Cap three: the US citizen limit in Article 24(6)

A US citizen living in the UK pays US tax on everything because of citizenship, not because of where the income arises. Article 24(6) stops the UK paying for that. On US-source income, the UK only takes into account the US tax that could be charged on a UK resident who is not a US citizen. HMRC's Double Taxation Relief Manual at DT19853 summarises it: the UK will not give relief for US tax charged solely under the saving clause, and the US then gives credit for the UK tax.

For a US citizen, then, the UK credit on portfolio dividends is 15% even if the actual US tax was higher, and the UK credit on US bank interest and regular US pension income is nil, because the treaty would not let the US tax a non-citizen on those. DT19853 also notes that the UK will not give relief for US tax on US workdays of US citizens working for UK employers. The background to the saving clause is in our guide to the saving clause in the US/UK treaty, and the box-level effect for each income type is in Self Assessment for US citizens in the UK.

A worked example of foreign tax credit relief for US dividends

The figures below use 2025/26 rates for England, Wales and Northern Ireland from GOV.UK's income tax rates for current and past years: a £12,570 Personal Allowance, a £37,700 basic rate band, a £500 dividend allowance, and dividend rates of 8.75% (basic) and 33.75% (higher). Scotland's non-savings rates differ, but dividend rates are UK-wide.

Illustrative example: four UK residents each receive US dividends worth £10,000 in 2025/26 after conversion to pounds. Anna is British, earns a £70,000 salary and gave her broker a W-8BEN, so 15% (£1,500) was withheld. Ben has the same facts but no W-8BEN, so 30% (£3,000) was withheld. Chloe is British, earns £30,000 and had 15% (£1,500) withheld. Dan is a US citizen with Anna's salary and withholding. The names and figures are invented to show the arithmetic.

Taxpayer	US tax withheld	Treaty-allowed US tax (column C)	UK tax on the dividends	UK credit (FTCR)	What happens to the rest
Anna, higher rate, W-8BEN	£1,500	£1,500	£3,206.25	£1,500	Pays £1,706.25 UK tax; nothing lost
Ben, higher rate, no W-8BEN	£3,000	£1,500	£3,206.25	£1,500	Pays £1,706.25 UK tax; reclaims £1,500 from the IRS
Chloe, basic rate	£1,500	£1,500	£831.25	£831.25	Pays nil UK tax; £668.75 of US tax is unrelieved
Dan, US citizen, higher rate	£1,500	£1,500 (Article 24(6) limit)	£3,206.25	£1,500	Pays £1,706.25 UK tax; the US credits it on Form 1116

How the UK figures are reached. For Anna, the dividends sit on top of her salary in the higher rate band. The first £500 is covered by the dividend allowance and the remaining £9,500 is taxed at 33.75%, which is £3,206.25. The credit is the lower of £1,500 and £3,206.25, so £1,500, leaving £1,706.25 to pay. Her total tax on the dividends, £3,206.25, is the same as a UK dividend would have cost: the credit has done its job.

Ben's UK result is identical because column C is capped at the 15% treaty rate. The extra £1,500 is not lost, but HMRC will not give it back; it is a matter between Ben and the IRS, and a W-8BEN stops it happening again.

Chloe's taxable income of £27,430 stays inside the basic rate band, so her UK tax on the dividends is £9,500 at 8.75%, which is £831.25. That is the most HMRC will credit. The other £668.75 was correctly charged by the US under the treaty, so it cannot be reclaimed there either, and the UK does not let an individual carry it to another year.

Dan's UK figures match Anna's, because 15% is exactly what the US could charge a non-citizen. What changes is the US side. His US tax on the dividends is computed on his Form 1040 at US rates, and under Article 24(6)(c) the US must credit the £1,706.25 of UK tax, re-sourcing the income so that the Form 1116 limit can absorb it. The UK return has to be settled before the US credit can be finalised.

How do you claim foreign tax credit relief on the SA106?

You claim FTCR on the SA106 Foreign pages by entering the income gross, the treaty-allowed foreign tax in column C and an X in column E. HMRC then calculates the relief for you if the return is filed on time. The steps below follow the 2025/26 SA106 notes.

1. Collect the US figures. Use the broker's Form 1042-S or 1099-DIV for withholding, and your US return for tax on rental profit or earnings.
2. Convert to pounds. The SA106 notes say to use the exchange rate at the time the income arose, and point to HMRC's yearly average and spot rates if you are unsure. Convert the tax at the same rate as the income it relates to.
3. Apply the treaty cap. Enter in column C the lower of the tax withheld and the tax the treaty allows. For a US citizen, apply the Article 24(6) limit at this point.
4. Enter the income in full. Put the gross amount in column B and, where you claim FTCR, the same amount again in column F. The notes add that income covered by the dividend allowance carries no UK tax, so there is nothing to credit on it.
5. Put an X in column E on each row where you claim the credit.
6. Box 2 is optional. Only complete box 2 if you want to calculate the credit yourself, using HS263 first. Gains and employment income are reported on their own pages; the credit for foreign tax on them is claimed on pages F 6 to F 8.
7. Compare credit with deduction before you file, as the next section explains.

If you are not yet set up for Self Assessment, our UK Self Assessment service handles registration, the SA100 and the Foreign pages together.

Relief by deduction: when is it the better choice?

Relief by deduction treats the US tax as an expense: you are taxed on the income net of the foreign tax instead of claiming a credit. HS263 lets you choose whichever method is more beneficial, and says you do not need the SA106 credit columns if you only claim deduction relief. On the SA106, a row without a credit claim shows in column F the income in column B minus the tax in column C.

For most people credit wins. Take Chloe from the example. With the credit she pays no UK tax on the dividends. With deduction relief she would be taxed on £8,500, which after the £500 allowance is £8,000 at 8.75%, or £700 of UK tax on top of the US tax. Deduction makes sense mainly when there is little UK tax to absorb a credit, for example where trading losses already cover your other income: HS263's own example shows deduction relief preserving value that a credit would waste.

US state taxes, deadlines and the rules people miss

US state income tax

Article 2 of the treaty covers only US federal income taxes, so state and city taxes are not credited under the treaty. They can still be relieved through UK unilateral relief: section 9 of the Taxation (International and Other Provisions) Act 2010 allows credit for foreign tax that corresponds to UK tax and is charged on income arising in that territory. HMRC's list at DT19851 goes state by state. It treats California and New York State personal income tax as admissible, and New York City personal income tax on residents where charged on salaries; it lists Washington State's taxes as inadmissible. On the federal side, it lists federal income tax and the Net Investment Income Tax as admissible, and excludes Social Security, Medicare and self-employment contributions.

Time limits for the claim

Section 19 of the same Act says an individual's claim for credit must be made by the fourth anniversary of the end of the tax year, or, if later, by 31 January following the tax year in which the foreign tax is paid. For 2025/26 income, the first limb runs to 5 April 2030. The later limb helps when US tax is settled late, for example after an IRS adjustment.

The rule cuts both ways. If the US later refunds or reduces tax you have already claimed as a credit, section 80 requires you to tell HMRC within one year of the adjustment. Amended US returns therefore often mean an amended UK return too.

What people get wrong

• Crediting 30% US withholding. Only the treaty rate is creditable; the rest is an IRS reclaim.
• Claiming credit on US interest as a US citizen. Under Article 24(6) the UK credit is nil; relief belongs on the US return.
• Expecting excess credit to carry forward. HS263 has no carry-forward or carry-back for individuals; unused US tax is lost on the UK side.
• Mixing exchange rates. Income at one rate and tax at another gives a credit that does not match the income reported.
• Claiming FTCR and the FIG regime on the same income. The SA106 notes do not allow both.

Getting foreign tax credit relief in the UK right

The UK credit is rarely the whole of the US tax. It is a calculated figure: the treaty-allowed US tax, capped at the UK tax on the same slice of income, with a further limit for US citizens. Settle the UK credit first, then use it to finish the US Form 1116, and keep the workings, the exchange rates and the US forms together for the full four-year window.

If you would like both returns built from one set of numbers, our team handles double taxation relief US UK claims on both sides, and works with many Americans living in the UK. US/UK Cross Border Tax — US CPAs and UK tax advisers working as one team; London, Manchester, New York, San Francisco. Contact us to talk through your position.