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HMRC internal manual

International Manual

HM Revenue & Customs
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UK residents with foreign income or gains: income arising abroad: Accrued income

Under the Accrued Income Scheme (SAIM4000+), charges and allowances may arise when interest-bearing securities are transferred. If these securities pay interest from which foreign tax is deducted, special rules apply in the calculation of tax credit relief. These rules, which are in TIOPA10/S10:

  • allow unilateral tax credit relief (INTM161030) in respect of accrued income charges which arise on foreign securities; and
  • restrict both unilateral and agreement relief in respect of interest on foreign securities against which an allowance under the Accrued Income Scheme is available.

Following the introduction of the Loan Relationships legislation in FA96, these rules now only apply for Income Tax. See INTM167220.

Section 10 deals with the allowance of relief. It provides that tax credit relief may be allowed if three conditions are satisfied

  • an accrued income profit is made by the person; and
  • the person would be liable to tax on the interest from the securities creating the accrued income profit were they to receive it during the relevant tax year as relevant foreign income under ITTOIA 2005; and
  • the interest on the securities would, were it to become payable to the person, suffer foreign tax.

The measure of foreign tax credit relief to be allowed is given by applying to the accrued income charge on foreign securities the rate of foreign tax the person suffers or would have suffered on interest payable on those securities at the end of the relevant interest period. In ascertaining this rate of tax, the minimum foreign tax rule (see INTM161250) applies. So also do the normal rules governing the limits of credit (see INTM161210). If, however, a person does not claim the credit relief available under Section 10, there is no way they can obtain relief by other means. In particular, there is no provision for computing accrued income charges by reference to a net-of-foreign tax rate of interest.

TIOPA10/S39 provides for unilateral and agreement relief to be restricted when interest on foreign securities is reduced by an accrued income allowance. The restriction applies both where credit relief is claimed and where relief is instead allowed by deduction.

Where credit relief is given, Section 39 prescribes that the normal credit available is to be reduced in the proportion that the accrued income allowable bears to the interest against which that allowance is available.

Where credit relief is not claimed and the taxpayer has relief for foreign tax on foreign interest by way of deduction (see INTM161060), TIOPA10/S112 ensures that the amount of foreign tax allowed as a deduction is reduced from that actually suffered, in the proportion that the allowance for accrued income bears to the interest against which the allowance is given.


On 6 December 1987 an individual acquires a holding of 10,000 nominal of a foreign security which pays interest at 12 per cent p.a. on 6 April and 6 October each year. 15 per cent withholding tax is deducted from the interest. Subsequent transactions in this security are

  buys £5,000 nominal
6 July 1988 sells £8,000 nominal
6 November 1988 buys £3,000 nominal

The person claims credit relief for 1988-89 but makes no claim to have credit relief for 1989-90.

The position for 1988-89 is as follows.

There is a Case V assessment on 1,320 (that is 15,000 at 6% + 7,000 at 6%) but this is reduced by the accrued income relief for the interest period ended 6 April 1988 of £450:

i) £10,000 at 6 per cent x 2/6 = 200

ii) £35,000 at 6 per cent x 5/6 = 250

to a net assessment of £870.

There is an accrued income charge for the interest period ended 6 October 1988, resulting in a Case VI assessment of 8,000 at 6% x 3/6 = £240.

The tax credit relief available against tax on the Case V assessment is calculated as follows.

On interest on 10,000 paid 6 April 1988 - restricted to (600-200)/600 x 15% x 600 60.00
On interest on 5,000 paid 6 April 1988 - restricted to (300-250)/300 x 15% x 300 7.50
On interest on 7,000 paid 6 October 1988 - 15% on 420 63.00
The tax credit relief available against tax on the Case VI assessment is 240 at 15% 36.00

The position for 1989-90, where credit relief is not claimed, is:

The gross interest assessable is £7,000 at 12% = £840 (PY basis) plus £3,000 at 12% = £360 (CY basis).

There is accrued income relief of 1/6 of £180 = £30 for the interest period ended 6 April 1989.

Foreign tax of £l26 was deducted from the £840 interest assessed on the PY basis.

Tax of £27 was deducted from each of the two interest payments of £180 assessed on the CY basis.

The deduction for foreign tax is thus

£126 + £27 + (£27 x ((£180 - £30)/£180)) = £175.50

So the net Case V assessment will be £1,024.