Taxation (International and Other Provisions) Act 2010 section 40

Amount of limit

Section 40 sets out how to calculate the maximum amount of foreign tax credit that can be offset against a person's capital gains tax liability for a tax year.

• The foreign tax credit for any particular capital gain is capped at the amount of UK capital gains tax attributable to that specific gain.
• The cap is calculated by comparing the capital gains tax on total gains excluding the gain in question with the tax on total gains including it — the difference is the maximum credit.
• Where credits arise on more than one capital gain (whether under the same or different tax treaties or unilateral relief arrangements), the calculation is applied to each gain in turn, in the order that produces the greatest overall reduction in the person's capital gains tax bill.
• The capital gains tax figures used in the calculation follow the normal computation rules but must be worked out without allowing any credit for foreign tax.