Foreign Tax Credit Relief in Personal Tax
Foreign Tax Credit Relief (FTCR) is given on the lower of:
- The actual foreign tax deducted or withheld
- The applicable treaty rate applied to the gross income
- The ‘UK tax on the source’
note
- The 'UK tax on the source’ is calculated by running the tax computation and noting the tax due before FTCR. You then remove the first foreign source (and associated foreign tax) and re-run the computation. The difference in tax due before FTCR is the ‘UK tax on the source’. This process is then repeated for each foreign source.
- This calculation follows the HMRC’s Tax Return Guide. Unexpectedly higher levels of FTCR will be given where a client has high income levels which reduce the personal allowance, as the personal allowance may increase as each foreign source is removed thus increasing the difference in tax due between the two computations.
Personal, Business and Trust Tax orders based on the ratio of the gross amount of the foreign item to the maximum foreign tax rate on that item and selects the highest ratio first.
The FTCR backing schedule shows the order (from top to bottom) which Personal, Business and Trust Tax has given FTCR. In most cases this ordering results in the most beneficial way but you can change it. If you want to make changes, follow the steps in our help topic: Order items for the Foreign Tax Credit Relief in Personal Tax help topic.