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HMRC internal manual

International Manual

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HM Revenue & Customs
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UK residents with foreign income or gains: corporation tax: Credits on non-trading loan relationships: limit on DTR

TIOPA10/S49B applies where a company receives foreign income that gives rise to a non-trading credit on a loan relationship for an accounting period. It applies a limit to the amount of double taxation relief for any foreign tax suffered on that income that can be set against corporation tax on the profit from non-trading loan relationships.

This limit on relief applies in priority to any application of rules on allocation of debits in the guidance in INTM167230 onwards.

Computation of the limit on DTR

In computing the amount of DTR that is available it is necessary to identify the total amount of any non-trading debits (TNTD) that are brought into account on the same loan relationship in the same accounting period as the non-trading credit. This would not extend, for instance, to any debits on other loan relationships that separately reduce the company’s non-trading profit.

The amount of DTR is limited to the amount of corporation tax on (NTC - D), where NTC is the amount of the non-trading credit and D is an amount calculated as follows:

  • In the simplest scenario where there is only one non-trading credit in the accounting period on the loan relationship, D is simply TNTD, capped at NTC if that is less than TNTD.
  • If there is more than one non-trading credit on the loan relationship in the period then D is TNTD - A, again capped at NTC if that is a lower amount, where A is the total of any amounts already deducted from other non-trading credits in the period in computing the limit on DTR. There is no prescribed order for allocating the debits to the credits on which foreign tax has been suffered and the company can choose the order of set-off.

INTM167226 gives examples of each of these scenarios.

Hedging arrangements

Where a company has entered into hedging arrangements that give rise to non-trading credits or debits on loan relationships, other than the one giving rise to a non-trading credit where foreign tax was suffered, those debits and credits are not taken into account in computing the limit on DTR for the foreign tax suffered.

This might be the case, for instance, where a company has entered into separate hedging transactions in order to hedge foreign exchange movements, perhaps on a loan asset denominated in a foreign currency.