This part of GOV.UK is being rebuilt – find out what beta means

HMRC internal manual

Life Assurance Manual

Double Tax Relief: Restriction of relief to the corporation tax rate and interaction with policyholder tax rate TIOPA10/S42

The amount of foreign tax credited against corporation tax (CT) on income must not exceed the CT attributable to that income. TIOPA10/S42(3) links to detailed rules for attributing CT to income for this purpose where deductions from total profits (for example, charges or management expenses) are to be set off (LAM09030).

In cases where the policyholders’ rate (FA12/S102) applies to part but not all of a company’s relevant profits, when calculating the amount of CT attributable to an amount of income or gain, the rate to be used is the composite rate of corporation tax payable by the company.


A company receives foreign source interest of £1m net of 25% foreign tax. The mainstream rate of CT is 17%, and the policy holder rate is 20%. The relevant profits are 100,000 of which 20,000 are chargeable at the mainstream rate of 17%, and the balance at the policy holder rate of 20%.

The composite rate of CT chargeable on the interest is calculated as follows:

  Tax rate Relevant profits Tax
CT at mainstream rate 17% 20,000 3,400
CT at PH rate  20% 80,000 16,000
Total tax   100,000 19.400
Composite rate     19.4%

Credit for foreign tax is limited to 19.4%. This is regardless of any other restrictions on credit relief.