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HMRC internal manual

General Insurance Manual

HM Revenue & Customs
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Double taxation relief: foreign tax on investment income: accounting periods beginning on or after 1 April 2000: section 804C ICTA 1988: the second limitation: section 804C(4) calculation


ICTA88/S804C (4) applies a second limitation on the calculation of the credit relief for foreign tax. The purpose is to restrict the credit for all items of foreign tax to the corporation tax actually charged on the Case I profit after relief for losses brought forward. The losses concerned will be Case I losses brought forward under ICTA88/S393 (1) against the profits of non-life business.

Strictly, section 804C(4) also applies on an item by item basis, so that the credit reliefin respect of any item of relevant income is limited to the corporation tax on theproportion (the relevant fraction) of the Case I that the item bears to the total of allthe items in the computation that have borne foreign tax.

The relevant fraction to be applied to the profit - section 804C(9) is:

the amount of the relevant income before the reduction for expenses

the total of all the amounts of relevant income of general business

The relevant income means the whole or part of any item of income or gain in respect of which foreign tax falls to be allowed as credit which is referable to general business. The denominator is the sum of all such items or parts of income and gains.

While the section 804C(3) limitation can safely be applied to the aggregate amounts of foreign income, this is not necessarily true for the section 804C(4) limitation. Items of income taxed at the same rate of foreign tax can always be aggregated and there should be no problem where the Case I profit is significantly larger than the total foreign income attributable to the business as limited by the section 804C(3). In other cases care will be required.

Any restriction under section 804C(4) will increase the amount of foreign tax deductible as an expense in the Case I computation. This will reduce the profit and hence increase the section 804C(4) restriction. To avoid iteration the section 804C(4) limitation, C, can be calculated as follows:

C = [(P-Y)/(1-R)]


  • R is the rate of corporation tax
  • P is the Case I profit (or the relevant fraction of the profit) before any deduction for foreign tax other than that which can only be expensed
  • Y is the foreign tax on the relevant income

GIM12280 gives an example of the second limitation.