HM Revenue and Customs Brief 17/10
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Issued 19 March 2010
Restriction of Foreign Tax Credit Relief on chargeable gains
The purpose of this brief is to publicise a change to the established
practice of restricting the amount of Foreign Tax Credit Relief (FTCR) that can
be deducted when calculating the amount of UK tax due on a chargeable gain.
Where a gain is chargeable to UK Capital Gains Tax or UK Corporation Tax and
the same gain has also been taxed in another country then FTCR can be claimed in
respect of the foreign tax paid.
Our practice has been to restrict the amount of FTCR if different periods of
ownership of the asset are considered when arriving at the gain assessable in
the UK and the foreign gain, or if the amount of the UK gain is less than the
We have reconsidered our view and are revising our practice so that the whole
of the foreign tax is allowable as FTCR up to the amount of the UK tax on the
The current practice
The established practice has been to restrict the amount of FTCR in the
following two situations:
The amount of gain charged to foreign tax may be calculated by reference to a
longer period of ownership than the period on which the gain charged to UK tax
is based. The most common instance is where assets were acquired before the 31
March 1982 and the gain chargeable in the UK is based only on the period from 31
March 1982 onwards. In such cases the established practice has been to restrict
the FTCR due by the following calculation:
period of time assessed by UK divided by period of time assessed by foreign
authority multiplied by foreign tax equals allowable FTCR
For example, where the asset was acquired on 31 March 1971 and disposed of on
31 March 1993, with foreign tax of £10,000 charged then the maximum amount of
FTCR would be restricted as follows:
31 March 1993 minus 31 March 1982 equals 11 years divided by 31 March 1993
minus 31 March 1971 equals 22 years multiplied by £10,000 equals £5,000
Where the gain charged in the UK is less than the gain charged to foreign
tax, the established practice has been to restrict the maximum amount of FTCR
due by the following calculation:
amount of UK assessment divided by amount of foreign assessment multiplied by
foreign tax equals allowable FTCR
For example, where the UK assessed a gain of £55,000, the gain charged to
foreign tax was £75,000 and the foreign tax was £15,000 then the FTCR would be
restricted as follows:
£55,000 divided by £75,000 multiplied by £15,000 equals £11,000
How we intend to implement the revised practice
From 19 March 2010 the practices described above that restrict the allowable
FTCR will end. In all cases where FTCR is claimed against UK tax on chargeable
gains, the whole of the foreign tax will be allowable up to the amount of the UK
tax on the gain, provided that the gain charged in both countries relates to the
In the examples above, the maximum allowable FTCR would now be the full
£10,000 of foreign tax in the first case and the full £15,000 of foreign tax in
the second, provided, in each case, that this amount was less than or equal to
the UK tax.
This change will bring the chargeable gains practice in line with the Income
Tax practice, which does not restrict the amount of FTCR allowed where the
amount assessed in the UK is less than the amount of income assessed to foreign
If tax returns were submitted with a claim to FTCR on the basis that the FTCR
should be restricted, and those returns are still open or within the
self-assessment window for amendment, they may be amended to reflect the change
in practice. In other cases where FTCR has been restricted a claim can be made
for additional relief within the normal time limits.
The current time limit for claims and assessments for Income Tax and Capital
Gains Tax is five years from the 31 January immediately following the tax year
and for assessments to Corporation Tax six years from the end of the accounting
period to which the claim relates.
However, following changes announced in the 2008 Budget, from 1 April 2010
there will be a standard limit of four years from the end of the tax year for
making claims of repayments to Income Tax and Capital Gains Tax and four years
from the end of the accounting period for Corporation Tax.
Under these rules claims resulting from this change of practice that relate
to Income Tax and Capital Gains Tax for the tax year 2004-05 would have to be
made before 1 April 2010 and claims for the tax year 2005-06 must be made before
6 April 2010. Similarly, companies would have until 31 March 2010 to make claims
for accounting periods ending before 1 April 2006, provided such claims are
within the current six year time limit.
Because publication of this brief leaves so little time for such claims to be
made within the statutory time limits, we will, exceptionally, accept late
claims for the tax years 2004-05 and 2005-06 or accounting periods ending on
dates between 19 March 2004 and 29 June 2006, provided that those claims are for
additional tax credit relief resulting from this change of practice and are made
no later than 30 June 2010.
Guidance on the current practice can be found at CG14380 onwards
http://www.hmrc.gov.uk/manuals/CG1manual/cg14380+.htm . The Capital Gains Manual
will shortly be updated to reflect the change in practice.
For further information please contact:
Charities, Assets & Residence - CGT
Tel: 0121 712 8654
About the Author
© Crown Copyright 2010.
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educational / informational purposes only. Article reproduced by permission of
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updated regularly and may be out of date at time of reading.
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Article Published/Sorted/Amended on Scopulus 2010-06-14 12:01:34 in Tax Articles