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HMRC internal manual

Savings and Investment Manual

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HM Revenue & Customs
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Accrued Income Scheme: double taxation relief

Double taxation relief

Where an AIS charge arises on a foreign stock on which the interest would have suffered foreign tax eligible for credit relief if interest had been received, credit for foreign tax is allowable for the lower of

  • the rate of United Kingdom tax charged on the accrued income profit, and
  • the rate of foreign tax suffered on the interest payable at the end of the interest period for which the charge arises.

If there is an accrued income loss to be set against foreign interest, reduce the credit for foreign tax in the proportion which the allowance bears to the interest.

Example

Taxpayer holds foreign stock on which the interest suffers tax eligible for credit at 15%. Interest paid on 30 June and 31 December.

In the interest period to 30 June 2005, the taxpayer makes transactions resulting in an AIS loss of £200. He receives interest (gross) of £1,000 less £150 foreign tax.

In August 2006 he sells the entire holding and there is an AIS profit of £300. He is liable to United Kingdom tax at 22%. His double taxation relief is as follows

Foreign interest £1,000
   
Less Accrued Income relief £200
  £800
Foreign tax deducted £150  
     
Credit restricted to £1000-£200 x £150/£1000 =£120
Accrued income profit £300
   
Allow credit for foreign tax on AIS charge £300 @ 15% =£45
Total double taxation relief £120 + £45 =£165

The double taxation relief given can exceed the foreign tax suffered (£165 exceeds the £150 suffered).