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HMRC internal manual

International Manual

UK residents with foreign income or gains: corporation tax: Loan relationships: relief for foreign tax: identification of UK tax: Example 8

There are credits relating to interest which has suffered foreign tax but a loan relationship deficit overall, part of which the company surrenders as group relief or carries back or forwards to other accounting periods under CTA09/S459 and S457:

The figures are as in example 5 (see INTM167290) and claims are made in respect of the deficit of £1,000 as in example 7 (see INTM167310). In addition the company has a non-trading deficit of £300 brought forward from an earlier accounting period which it claims to set against non-trading profits of the current accounting period under CTA09/S457 (in this case, against the property income).

For the purpose of allowing credit relief in respect of the foreign interest of £500 the computation is restated to show UK tax chargeable on the credits of £500 + £600 + £800 and to show separately debits of £2,500 (that is, the aggregate of the debits of £2,900 less £400 which is the amount of the deficit to which the claims for relief under CTA09/S459 and S457 relate) which are then treated as available to be set against profits of any description for that accounting period under TIOPA10/S52. Taking account of other profits for the accounting period and of the non-trading deficit brought forward the result would be as follows

  Trade Loan Relationship   Property Income Foreign dividend Total
Profits 2,000 (600)   500 1,000 2,900
less non-trading deficit brought forward       (300)   (300)
  2,000 (600)   200 1,000 2,600
Restated as Trade Loan Relationship (i) Other Loan Relationship Property Income Foreign dividend Total
Profits 2,000 500 1,400 200 (iii) 1,000 5,100
less Loan Relationship debits (ii) (900)   (1,400) (200)   (2,500)
  1,100 500     1,000 2,600


i) see note (i) to example 1.

ii) see note (ii) to example 7.

iii) TIOPA10/S53(2) ensures that a non-trading deficit brought forward remains allocable only against non-trading profits of the applicable accounting period and the debits £2,500 are then allocated against the profits that remain, i.e. effect is given to relief for the deficit brought forward before the debits of the current accounting period are allocated under Section 54(2).