Taxation (International and Other Provisions) Act 2010 section 35

Disallowed credit: use as a deduction

Section 35 provides relief where a foreign tax credit cannot be set against UK tax, by allowing the disallowed credit to be used as a deduction from income or chargeable gains instead.

• Where the credit limit rules prevent a foreign tax credit from being set against income tax or corporation tax, the taxpayer's income is reduced by the amount of the disallowed credit.
• Where the credit limit rules prevent a foreign tax credit from being set against capital gains tax, the taxpayer's chargeable gains are reduced by the amount of the disallowed credit.
• The deduction is capped: it cannot exceed the amount of any loss attributable to the income or gain on which the foreign tax was paid.
• When calculating whether a loss exists for this purpose, the payment of the foreign tax itself is taken into account as a cost, even though it would normally be disregarded when computing the income or gain.