Foreign tax set against UK income

[nithbank]

Here goes...

I am employed in the UK, firmly in the 40% bracket. I also run a partnership in the publishing area, whose main source of income is royalties generated in Singapore, with annual witholding tax of c £5,500 equiv. The partnership is my wife and I - my wife is retired with a total income of around the UK state pension (£8,000), so not paying tax. The partnership agreement allows us to split the profits any way we deem fit. 2016-17 profits before split are £13,000. My advisor wants all the profits allocated to me so all the foreign tax can be offset against my UK tax bill (fair enough!). However, my question is whether it is possible for the partnership to agree that all the tax relief comes to me, but all (or most) of the partnership profits go to my wife, to take advantage of zero or 20% rates that I don't get.

Thanks for reading.

[darthblingbling]

How much income are the royalties generating as you are limited to a certain percent for foreign tax relief on royalties.

[nithbank]

Gross royalties are around £55,000

[bd6759]

Difficult to see how you get profits of £13K out of royalties of £55k.

In any event, foreign tax credit relief is to prevent income from being taxed twice. So if you are not being taxed on the income, you cannot claim relief for foreign tax paid.

Also, if the profits are only £13,000, whoever gets that proft will only be able to claim FTCR up to the amount of foreign tax paid on the income that is being doubly taxed. If only £13,000 is being doubly taxed then only the witholding tax on that £13,000 will be available for FTCR.

[maths]

The foreign tax credit position cannot be determined until a classification of the royalty income has been made.

Such income can arise from a trade/profession/vocation or it can constitute annual payment royalties (ie purely passive investment) or non-annual payment royalties (ITTOIA 2005 s579).