Guidance

Foreign Tax Credit Relief for Capital Gains of Trusts and Estates of deceased persons 2015 (HS390)

Updated 10 July 2019

To calculate the trust or estate’s tax, use this helpsheet to work out the Foreign Tax Credit Relief available to set against capital gains. Under the terms of a Double Taxation Agreement, or unilaterally, relief by way of credit for foreign tax paid (‘tax credit relief’) is available to set against United Kingdom (UK) Capital Gains Tax chargeable on the same gains.

Alternatively, you may deduct the foreign tax in calculating the gain or loss on a particular disposal (see page TCN14 of the notes on Trust and estate capital gains pages). However, this will only usually be to your advantage where no UK tax is chargeable on a disposal, for example, when a loss results in there being no UK tax against which the foreign tax can be set off.

This helpsheet will allow you to work out the amount of Foreign Tax Credit Relief you can claim. You’ll also need to complete the Trust and Estate Foreign pages.

General principles

The amount of credit for foreign tax is not to exceed the lower of the foreign tax charged on the gain and the UK tax on the doubly taxed part of the gain.

If the foreign tax paid exceeds the UK tax on the gain, the excess can neither be deducted from the amount of the gain chargeable to Capital Gains Tax nor can it be repaid.

The amount of credit must be calculated separately for each gain. An excess of foreign tax over the UK tax on a particular gain cannot be credited against tax on any other gain.

Method

Step 1

Make sure that you’ve completed pages TC 1 to TC 4 of the Trust and estate capital gains pages and included your computations for each gain.

Step 2

Complete Page TF 3 of the Trust and Estate Foreign pages to show the amount of each gain for which you’re claiming Foreign Tax Credit Relief.

Step 3

Calculate separately the UK Capital Gains Tax chargeable for each gain on which you have paid foreign tax and for which you’re claiming credit. Use the Working Sheet to help you to do this.

Step 4

Compare the UK Capital Gains Tax chargeable on each gain with the amount of foreign tax eligible for credit. The relief you can claim is the lower of the 2 amounts. Copy the total relief due to box 4.10 of the Trust and Estate Foreign pages and box T7.28 on page TTCG 13 of the Trust and Estate tax calculation guide.

Column A (rows 1 to 12)

You should enter in column A details of your chargeable gains minus any gains that are taxable on any settlor or beneficiary of the settlement. Your gains are those after all allowable losses have been set off.

Columns B and C (rows 1 to 12)

Use these columns to analyse the overall figures shown in column A.

In column B enter the amounts corresponding to gains chargeable to UK Capital Gains Tax for which you’re not claiming Foreign Tax Credit Relief. That is, any UK gains and any foreign gains that have either not been subject to any foreign tax or where the foreign tax paid has been deducted in computing the amount of the gain that is chargeable to UK tax.

In columns C(i) to C(viii) enter individual gains that have been subject to foreign tax for which you’re claiming Foreign Tax Credit Relief. If you’ve more than 8 such gains, photocopy the Working Sheet before making any entries.

When entering details of losses of the year (row 2), the annual exempt amount (where due) (row 3) and losses from previous years (rows 4 and 5), you can allocate the annual exempt amount and unclogged losses in the way that is most beneficial to you. This will normally be by allocating them against gains charged at 28%. However, allocating them to gains where the foreign tax rate exceeds the UK tax rate makes no difference to the UK tax payable as all the UK liability will be extinguished by the foreign tax.

You must, where possible and if you’ve sufficient losses, deduct all of your allowable losses of the year from gains until all gains have been extinguished. Any losses brought forward from a previous year must then be used to reduce gains to the annual exempt amount, even if this means the tax payable in row 10 is reduced to an amount less than the foreign tax paid in row 11.

The annual exempt amount is only due in the year of death and 2 subsequent years. After this period no annual exempt amount is due.

Column C (row 11)

Enter the respective amounts of foreign tax eligible for Foreign Tax Credit Relief.

Column C (row 12)

For each separate column, enter the lower of the figures at rows 10 and 11.

Column A (row 12)

Add up all the figures in column C, row 12, and enter the total in column A. This is the total Foreign Tax Credit Relief allowable for the year. Copy this figure to box 4.10 in your Trust and Estate Foreign pages and box T7.28 on page TTCG 13 of the Trusts and Estates tax calculation guide.

Example 1

You have gains of £33,500, consisting of UK gains of £6,500 and Country X gains of £15,000 (foreign tax paid at 15%) and Country Y gains of £12,000 (foreign tax paid at 20%).

To maximize your foreign tax credits you’d allocate your annual exempt amount to the tax rate bands in the table below.

		Column A	Column B	Column C (i)	Column C (ii)
1	Gains before any losses	£33,500	£6,500	£15,000	£12,000
2	Minus losses of the year	£0	£0	£0	£0
3	Minus annual exempt amount*	£10,900	£6,500	£971	£3,429
4	Minus clogged losses of previous years	£0	£0	£0	£0
5	Minus unclogged losses of previous years	£0	£0	£0	£0
6	Equals net taxable gains	£22,600	£0	£14,029	£8,571
7	Gains chargeable at 10%	£0	£0	£0	£0
8	Gains chargeable at 18%	£0	£0	£0	£0
9	Gains chargeable at 28%	£22,600	£0	£14,029	£8,571
10	UK Capital Gains Tax chargeable on gains	£6,328	£0	£3,928	£2,400
11	Foreign tax eligible for credit relief	£4,650	£0	£2,250	£2,400
12	Foreign Tax Credit Relief allowable	£4,650	£0	£2,250	£2,400

*Please note – the annual exempt amount is only due in the year of death and 2 subsequent years. After this period no annual exempt amount is due.

Example 2

You have gains of £43,500, consisting of UK gains of £6,500 and Country X gains of £25,000 (foreign tax paid at 15%) that qualify for Entrepreneurs’ Relief and Country Y gains of £12,000 (foreign tax paid at 20%). You also have losses brought forward from a previous year of £6,000.

To maximize your foreign tax credits you would allocate your annual exempt amount to the tax rate bands in the table below.

		Column A	Column B	Column C (i)	Column C (ii)
1	Gains before any losses	£43,500	£6,500	£25,000	£12,000
2	Minus losses of the year	£0	£0	£0	£0
3	Minus annual exempt amount*	£10,900	£6,500	£4,400	£0
4	Minus clogged losses of previous years	£0	£0	£0	£0
5	Minus unclogged losses of previous years	£6,000	£0	£2,571	£3,429
6	Equals net taxable gains	£26,600	£0	£18,029	£8,571
7	Gains chargeable at 10%	£18,029	£0	£18,029	£0
8	Gains chargeable at 18%	£0	£0	£0	£0
9	Gains chargeable at 28%	£8,571	£0	£0	£8,571
10	UK Capital Gains Tax chargeable on gains	£4,203	£0	£1,803	£2,400
11	Foreign tax eligible for credit relief	£6,150	£0	£3,750	£2,400
12	Foreign Tax Credit Relief allowable	£4,203	£0	£1,803	£2,400

*Please note – the annual exempt amount is only due in the year of death and 2 subsequent years. After this period no annual exempt amount is due.

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