What is a HS304?

HS304 is the name of the form and corresponding guidance document that you need if you are a UK non resident and want to reclaim UK tax under Double Taxation Agreement rules.

What is a Double Taxation Treaty?

A Double Taxation Treaty (DTA) is a pact between two countries eliminating that possibility that you have to pay tax on the same income in both places. If you are originally from one country, but now reside in the other. It does not mean that you don’t pay any income tax at all.

The UK has DTAs with lots of different countries. They are all individually negotiated and have their own terms and are important part of any UK non residents tax position.

You can see the full digest of countries that have a DTA with the UK here. They are listed alphabetically and some of the individual details of the treaties are included in the table.

Why do DTAs matter to me?

If you are a resident of another country and still earn income in the UK, you are entitled to UK tax relief if a DTA is in place between your new home and Britain.

Can I claim tax relief on all my UK income as a non-resident?

There are several types of income that are allowable for UK non resident tax relief, including: royalties, annuities, work pensions, interest earned from financial institutions.

Does this mean I get tax relief on the full amount of UK tax I paid on my income?

There are different types of tax relief in this situation, with different levels of tax relief available. It depends on the terms of each specific DTA. It could be:

• Partial tax relief: you can get back some UK tax on money you earned in Britain.
• Full tax relief: you are entitled to reclaim all of your UK income tax, but might have to pay tax on this income in your country of residence instead.
• Credit relief: this means that your new country of residence will ‘give you credit’ for the tax you have already paid on your British income, against their income tax requirements. This is an important option for you if your income is liable for tax in both your country of residence and the UK. You will have to make an official claim for this in your country of residence, it doesn’t happen automatically.

There are other common clauses in DTAs that you will need to adhere to if you are making a UK tax relief claim. For example, you are the beneficial owner of the income. This is defined as someone who ‘enjoys the benefits’ of the income, but they are not in your name. Another common element is that your income is subject to tax, which just means that it is taxable in your country of residence.

How do I prepare to make a claim using HS304?

Organised planning is the key to a successful claim of this nature. Firstly, make sure that you understand all the details of your country’s DTA with the UK and that you meet all the requirements. Collect, collate and keep all the evidence that proves you meet the requirements. You may need to show this evidence to support your claim.

Do I need a certificate of overseas residence to claim UK income tax relief?

Yes, you will need a certificate of overseas residence to support your UK income tax relief claim. This only applies to countries in a DTA with Britain. You get these certificates from your country’s HMRC equivalent usually their tax office.

Do check that the certificate demonstrates how much income you have paid tax on in your country of residence and that it confirms you pay tax in this country on some, or all, of the income you are claiming tax relief on.

Is this certificate of overseas residence something that I need for all countries that the UK has a DTA with?

If you live in any country that has a DTA with Britain, you need a certificate of overseas residence, except for the USA. America has a different approach to taxation and its residents are subject to income tax on their worldwide earnings, no matter where they live. If you are a USA resident, this rule applies to you too.

How do I know if I am a US resident?

The question of residency status isn’t as obvious as it first seems. You are considered a US resident if you “have a substantial presence, permanent home or habitual abode in the US” and no other country considers you a resident (other than Britain).

What does substantial presence mean?

‘Substantial presence’ does seem rather vague, but there is a more precise definition. If you are in the USA for a minimum of 31 days in the year in question, you are considered to have a ‘substantial presence’. In this context, parts of days are considered as an entire day. You are also defined as having a ‘substantial presence’ if you have spent a total of 183 days in America in the year in question and the two preceding years. (A minimum of 31 days in each year.)

How do I claim for my non UK resident income tax relief?

Your claim journey is defined by exactly what you are claiming tax relief on and you must complete the correct section of HS304.

If you are claiming partial UK tax relief, you fill in section 3(b). For full tax relief, you need section 3(a). Both of these claims require evidence to support them, so you must retain all of the vouchers which demonstrate how much UK tax credit or tax you can claim for. Photocopies of these documents are not viable evidence in this situation, you must have your originals.

If you receive a dividend as a result of income from property, you can apply for tax relief using the same sections of the HS304 as above. Your financial situation may be a UK Real Estate Investment Trust (UK-REIT).

Do dividends still have a tax credit?

No, since April 2016, tax credits for dividends are replaced by the Dividend Allowance. This applies to any dividends earned after 6th April 2016.