INTM167226 - UK residents with foreign income or gains: corporation tax: Credits on non-trading loan relationships: limit on DTR - examples

INTM167225 shows how TIOPA10/S49B applies a limit on double taxation relief for foreign tax arising on non-trading loan relationship credits in some circumstances. The following examples illustrate the two scenarios described there:

Example - single non-trading credit on the loan relationship in the period

A company has made a loan denominated in a foreign currency and is paid gross interest of 100 in an accounting period which is subject to withholding tax of 15. There is also a non-trading debit of 60 on the same loan relationship brought into account in the period arising from a foreign exchange loss on the loan (all figures are sterling equivalents).

Then NTC-D = 40 and the amount of DTR for the withholding tax is limited to the amount of corporation tax on 40, which at a rate of 20% is 8. If instead there was a non-trading debit of 110 then NTC-D would be 0 and no DTR would be available for the withholding tax.

Example - more than one credit on the loan relationship in the period

A company receives interest payments in an accounting period of 40 and 60 suffering withholding tax at 10% of 4 and 6 respectively on these, and there is also a non-trading debit of 70 on the loan relationship for the period.

TNTD is 70. This is allocated first to the credit of 60 and then to the credit of 40 as follows:

• Payment of 60: A = 0 and NTC = 60 so D = 60 (TNTD capped at 60). NTC-D = 0 and no DTR is available for the withholding tax of 6.
• Payment of 40: A = 60 and D = 70-60 = 10. Then NTC-D = 30 and the limit on the amount of DTR is the amount of corporation tax on 30, which at 20% is 6, so all of the withholding tax of 4 on this payment is available as DTR against tax on the non-trading profit for the period.