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HMRC internal manual

International Manual

UK residents with foreign income or gains: capital gains tax: Amount of foreign tax credit relief: exemption from tax

Where the total of the chargeable gains in any year of assessment exceeds the exempt amount provided by TCGA92/S3, the exempt amount should, as far as possible, consist of gains on which no foreign tax has been charged. This will enable credit for foreign tax charged on the gains to be allowed against the UK Capital Gains Tax charged on those gains.

The following example demonstrates the application of this paragraph and of INTM169120

In 2009-10, an individual has the following chargeable gains:

UK 10,000  
Country X 20,000 Foreign tax £2,000
Country Y 6,000 Foreign tax £2,700

He has losses of £6,000 available for deduction. The exemption limit for 2009-10 is £9,600.

The computation of his liability is as follows:

  UK Gain Country X Gain Country Y Gain
  £ £ £
  10,000 20,000 6,000
Less Loss 6,000    
Sub total 4,000 20,000 6,000
Less Exempt Amount 4,000 5,600  
    14,400 6,000
Tax at 18%   2,592 1,080
Less Foreign Tax Credit Relief   2,000 1,080
Tax Payable Nil 592 Nil

The balance of Country Y’s tax of £1,620 (2,700 less 1,080) cannot be set off against the Capital Gains Tax payable on the Country X gain and cannot be repaid.