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HMRC internal manual

International Manual

UK residents with foreign income or gains: income tax: Losses - relief under ITA2007/S83

ITA2007/S83 provides that a loss incurred in a trade can be carried forward and set-off against profits of a subsequent year. If the trade is carried on partly in the UK and partly abroad it is not necessary to calculate how much of the loss relates to the trade carried on in the UK and how much to the trade carried on abroad. It is carried forward in one sum. If the profits of the subsequent period include profits from that part of the trade carried on abroad which have borne foreign tax, then for tax credit relief purposes set off the loss first against the profits of the part of the trade carried on in the UK and any balance against the foreign profits.

Example

For the year ended 31 March 2003, a taxpayer’s Case I profits are £20,000 made up of

  £
   
UK profits 12,000
Foreign branch profits 8,000 (foreign tax 2,000)

He has a loss of £12,000 brought forward from the year ended 31 March 2002. That loss can be set off against the UK profits, leaving £8,000 charged to tax. Foreign tax credit relief is available for the lesser of the foreign tax and United Kingdom tax at the taxpayer’s marginal rate on the foreign income (see INTM165040, paragraph 2).

If the loss brought forward had been £10,000 then the figures are

  UK profits Foreign profits
     
  £ £
  12,000 8,000
Less loss brought forward (10,000) -
  2,000 8,000

Foreign tax credit relief is available for the lesser of the foreign tax and United Kingdom tax at the taxpayer’s marginal rate on the foreign income of £8,000.