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HMRC internal manual

International Manual

From
HM Revenue & Customs
Updated
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UK residents with foreign income or gains: income tax: Cases IV/V example

A taxpayer’s overseas bank deposit account yields the following amounts of interest

Year ended 5 April 1995:

£10,000 (assessed PY1995-PY96)

Year ended 5 April 1996:

£12,000 (foreign tax paid £2,400)

Year ended 5 April 1997:

£15,000 (foreign tax paid £3,750)

The assessment for 1996-97 is 50 per cent (12/24 months) of the income of the two years ended 5 April 1997, as follows:

50% x (£12,000 + £15,000) = £13,500 (Para 6(2), Sch 20)

The foreign tax attributable to the income assessed to UK tax is:

50% x (£2,400 + £3,750) = £3,075 (Para 10(5), Sch 20)

If the interest is chargeable at a basic rate of 25 per cent, the net tax liability will be:

£13,500 at 25% = £3,375, less tax credit relief (£3,075) = net tax payable £300

The balance of the foreign tax paid (that is (£2,400 + £3,750) less £3,075 = £3,075) goes unrelieved and cannot be repaid or set against UK tax on income from any other source. Nor is it deductible under ICTA88/S811 in computing the amount of the income chargeable to tax.