Section 35: Disallowed credit: use as a deduction
111.This section gives a deduction for a foreign tax credit which cannot be set against the taxpayer’s United Kingdom tax liability. It is based on section 798C of ICTA and section 277(1) of TCGA.
112.Section 798C(2) of ICTA requires the taxpayer’s income to be treated as reduced. Section 277(1) of TCGA extends section 798C(2) to capital gains tax. Taken literally, the substitution rule in section 277(1) would require “income” to be translated as “capital gains”. But, if the subsection is to give effective relief from capital gains tax, as indicated by the opening words of section 277(1), then it should be the taxpayer’s chargeable gains that are reduced. Subsection (4) accordingly refers to the taxpayer’s “chargeable gains”.