Foreign tax credit

A client realised a gain on the disposal of shares in an American land holding company.

The shares were gifted to him in 1987 (value £500) and sold for £2 000. If indexation was £250 the UK gain will be £1 250. After taper relief at 40% £750 would be taxed at 40% i.e. tax of £300.

However in the US the gain is £2 000 because the original cost of the shares (initially acquired 50 years before the 1987 gift and which still attaches to these shares) was negligible.

The US will tax this gain under their 'FIRPTA' regulations at 15% so US tax will also be £300.

Following IR261 it appears that the foreign tax credit (FTC) must be restricted in one of two ways: first by time apportionment asking 'is the same period...