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HMRC internal manual

International Manual

HM Revenue & Customs
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UK residents with foreign income or gains: corporation tax: Intangible fixed assets: Non-trading items: Limit on relief

Where a company receives foreign income that gives rise to a non-trading credit on an intangible fixed asset for an accounting period, TIOPA10/S49B 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 non-trading gain from intangible fixed assets.

This limit on relief applies in priority to any application of rules on allocation of debits as described in INTM167480.

Computation of the limit on double taxation relief

In computing the amount of double taxation relief 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 intangible fixed asset in the same accounting period as the non-trading credit. This would not extend, for instance, to any debits on other intangible fixed assets that separately reduce the company’s non-trading gain.

The amount of relief 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 intangible fixed asset, D is simply TNTD, capped at NTC if that is less than TNTD.
  • If there is more than one non-trading credit on the intangible fixed asset 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 double taxation relief. 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 (although it cannot set the debit against any credits on which there has been no foreign tax).

INTM167476 gives examples illustrating these scenarios.