Foreign tax credit relief
HMRC have announced a change to the UK tax treatment of foreign tax credit relief (FTCR). This relates to the amount of FTCR that can be claimed when a gain is also subject to capital gains tax or corporation tax in the UK. HMRC’s practice had been to restrict the amount of FTCR in the following two scenarios:
- Where different periods of ownership of an asset are considered when arriving at the gain assessable in the UK and the foreign gain. This is usually in relation to assets acquired prior to 31 March 1982 where the practice has been to restrict the amount of FTCR.
- Where the amount of the UK gain was less than the foreign gain.
HMRC have now reconsidered their view and with effect from 19 March 2010 the whole of the foreign tax incurred 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 same disposal.
This change will also be relevant to taxpayers that have suffered from a restriction of FTCR under these circumstances within the normal time limits. Due to the fact that HMRC’s notification of this change took place so close to the end of the tax year, HMRC have said that they will exceptionally allow late claims. The late claims relate to 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. Taxpayers affected by this change should take action as soon as possible.