The UK-Pakistan treaty and claiming foreign tax credit
Of the four treaty relationships in this cluster, the UK-Pakistan one gets used the most, because both countries tax and the population moving between them is large.
What the treaty does
It allocates taxing rights between the two states across categories of income, and provides for relief where both may tax.
It does not exempt income on request. The typical outcome is that the source state taxes, the residence state also taxes but gives credit for the source-state tax, and you end up paying approximately the higher of the two rates rather than both.
The case that comes up most
A UK resident owns a flat in Lahore and lets it. The mechanics:
- Pakistan taxes it. The rent is Pakistan-source income under the property head, with tax deducted or assessed there.
- The UK taxes it too. As a UK resident you report the gross rental income on your Self Assessment return, computed under UK property income rules — which are not the same as Pakistan's, so the taxable figure will differ.
- You claim credit. Foreign tax credit relief for the Pakistani tax paid, capped at the UK tax attributable to that income.
Two things to note. The gross income is reported, not the net-of-Pakistani-tax figure — omitting it because tax was already deducted is the single most common error here. And because the UK computes the taxable amount its own way, the two returns will not show the same number.
We prepare accounts, Corporation Tax and Self Assessment work with a UK-qualified professional on the engagement.
Avail our UK tax desk servicesThe credit is capped
Relief cannot exceed the UK tax attributable to the foreign income. If the Pakistani effective rate on that income is higher than the UK rate, the excess is not refunded — it is simply lost.
That makes it worth ensuring the Pakistani position itself is correct and that any Pakistani deductions and allowances have been properly claimed, rather than assuming the UK credit will absorb whatever was paid.
Evidence, in advance
A credit claim needs the Pakistani computation and proof of tax actually paid. An assessment showing tax due is weaker than a challan or receipt showing it was settled.
Because the Pakistani tax year ends 30 June and the UK year ends 5 April, the Pakistani return for the relevant period is usually available before the UK return is due. File Pakistan first and use its output as the input to the UK claim.
Certificate of residence
Where you need to demonstrate UK residence to claim treaty benefits on the Pakistani side, HMRC issues certificates of residence on application. Allow time; it is not immediate, and a Pakistani payer will generally apply the domestic rate without it.
Dual residence
Where both countries treat you as resident, the tie-breaker applies in order: permanent home, centre of vital interests, habitual abode, nationality, then mutual agreement.
Applied to facts, not preference. Someone whose family, home and working life have moved to the UK will generally tie-break to the UK regardless of continuing Pakistani connections — and someone who commutes between the two with family remaining in Pakistan may not.
Sources
This guide is written against the official and clearly labelled professional references below. Rates, thresholds and portal procedures change between reviews, so open the primary source before relying on a figure.
Questions people also ask
How does relief actually work for Pakistani rental income?
A UK resident reports the gross rental income on the UK return and claims foreign tax credit relief for the Pakistani tax paid on it. The credit is generally limited to the UK tax attributable to that income.
What evidence does a credit claim need?
The Pakistani computation showing the income and the tax, and proof that the tax was actually paid. An assessment showing tax due is weaker than evidence it was settled.
Where do I get a certificate of residence?
HMRC issues certificates of residence on application for UK residents. It is the standard evidence when claiming treaty benefits on the Pakistani side.
Can relief exceed my UK tax on that income?
Generally no. Credit is capped at the UK tax attributable to the foreign income, so if the Pakistani rate is higher the excess is not refunded by the UK.
Does the treaty cover pensions and employment income?
Treaties allocate rights across categories including employment, pensions, property income, dividends, interest and business profits. Each article has its own rule, so the answer depends on the income type.
Send the tax year and the transaction or filing involved, and we will tell you what is actually required.
Talk to Chartered Advisory Open the tax calculators