HMRC have issued Revenue & Customs Brief 17/10 which sets out changes to the established practice of restricting the amount of Foreign Tax Credit Relief (FTCR) that can be deducted when calculating the amount of UK tax due on a chargeable gain.

As practitioners will be aware, where a gain is chargeable to UK Capital Gains Tax or UK Corporation Tax and the same gain has also been taxed in another country then FTCR can be claimed in respect of the foreign tax paid. Current HMRC practice is to restrict the amount of FTCR if different periods of ownership of the asset are considered when arriving at the gain assessable in the UK and the foreign gain, or if the amount of the UK gain is less than the foreign gain.

HMRC has announced in Brief 17/10 that it intends to bring the chargeable gains practice in line with the Income Tax practice. Accordingly the whole of the foreign tax will be allowable up to the amount of the UK tax on the gain, provided that the gain charged in both countries relates to the same disposal.

The Brief goes on to set out the implications for taxpayers who have already filed tax returns containing claims for restricted FTCR and confirms that if those returns are still open or within the self-assessment window for amendment they may be amended to reflect the change in practice. In other cases where FTCR has been restricted a claim can be made for additional relief within the normal time limits.

As readers will be aware due to changes announced in the 2008 Budget, from 1 April 2010 the standard time limit for claims and assessments has been reduced to four years. This gives taxpayers with claims for the 2004/05 and 2005/06 tax years very little time to make claims. With this in mind, HMRC have confirmed that it will, exceptionally, accept late claims for the tax years 2004/05 and 2005/06 or accounting periods ending on dates between 19 March 2004 and 29 June 2006, provided that those claims are for additional tax credit relief resulting from this change of practice and are made no later than 30 June 2010.

The full text of the brief can be accessed at http://www.hmrc.gov.uk/briefs/cgt/brief1710.htm