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HMRC internal manual

International Manual

UK residents with foreign income or gains: double taxation relief: Definitions - root income basis, statutory income basis

The following definitions apply for the purposes of foreign tax credit relief:

a) ‘Credit on the root income basis’ means credit allowed for foreign tax against any UK tax computed by reference to the same income by reference to which the foreign tax is computed. For example, if interest of £100 has been taxed by the foreign country on a current year basis in 2010/11 and is taxed in the UK on the preceding year basis for 2011/12, credit should be allowed for the foreign tax charged for 2010/11 against the UK tax charged for 2011/12. Credit on the root income basis is the usual way in which credit is given.

b) ‘Credit on the statutory income basis’ means credit allowed in accordance with the decision in Duckering v Gollan 42 TC333, that is the foreign tax on the foreign income is the foreign tax payable in respect of the income from the source, for the same year as that for which the UK tax is assessed. If in the example referred to in (a) above, credit was due upon the statutory income basis, credit for the foreign tax charged for 2010/11 would be allowed against the UK tax charged on income from the same source for 2010/11. Credit against UK tax for 2011/12 would be allowed for the foreign tax paid for 2011/12. Where the foreign basis period for assessment does not coincide with the UK basis period see INTM161220. See SI1997/405 for the treatment of foreign tax paid in respect of profits or losses arising from the business of a Lloyd’s underwriter.