Taxation (International and Other Provisions) Act 2010 section 36

Amount of limit

Section 36 sets a cap on the amount of foreign tax credit that can be offset against a person's UK income tax liability for any tax year, ensuring the credit for each source of foreign income does not exceed the UK tax attributable to that income.

• The foreign tax credit for income from any particular source is limited to the amount of UK income tax attributable to that source, calculated by comparing two hypothetical tax computations
• Where credits are claimed for income from more than one foreign source, the calculation must be applied to each source in turn, taking the sources in the order that gives the greatest overall reduction in the person's income tax liability
• The hypothetical tax computations must be made in accordance with the normal rules for calculating income tax, but without any credit for foreign tax and without the vulnerable beneficiary trust reduction
• The total amount of foreign tax credit allowed against income tax is also subject to the overriding limits in section 29(2) and (3) of the Income Tax Act 2007, which prevent tax reductions from exceeding total tax liability