ACCA Advanced Taxation (ATX) Practice Exam

What determines the amount of double tax relief (DTR) available against UK income tax?

1. UK tax rates only

2. Overseas tax suffered or UK tax on overseas income

3. Only the overseas tax rate

4. Personal income tax bracket

The correct answer is: Overseas tax suffered or UK tax on overseas income

The correct choice regarding the determination of double tax relief (DTR) against UK income tax is related to the overseas tax suffered or the UK tax on overseas income. This concept arises from the need to prevent taxpayers from being taxed twice on the same income—once in the country where it is earned and again in the UK upon repatriation or declaration of that income. DTR is calculated based on the lower of the tax suffered in the overseas jurisdiction or the UK tax that would be payable on that same income. This ensures that taxpayers are not at a disadvantage when earning income abroad, fostering fairness in the taxation system. The significance of overseas tax suffered as a determining factor means that if a UK taxpayer earns income overseas and pays tax on that income in the other country, they can claim a relief against their UK tax liability, effectively reducing their overall tax burden. Lone elements such as UK tax rates or personal income tax brackets do not directly relate to how much DTR one can claim; rather, they would only play a role in calculating the final tax liability after the DTR has been applied. Therefore, the focus remains on the actual taxes incurred in the foreign jurisdiction or the corresponding UK tax on that income.