D4.925 Utilisation of eligible unrelieved foreign tax
The provisions in this article were repealed for distributions paid on or after 1 July 2009 following the introduction of the exempt distribution regime (see Division D5.1).
Eligible unrelieved foreign tax that has arisen from underlying tax can be set off only against related qualifying foreign dividends. Eligible unrelieved foreign tax must therefore be categorised either as 'relievable underlying tax' or 'relievable withholding tax'. When calculating eligible unrelieved foreign tax in an accounting period it is therefore necessary to separate the amounts arising into underlying tax and withholding tax before aggregating these amounts into eligible unrelieved foreign tax that is underlying tax and eligible unrelieved foreign tax that is withholding tax.
Eligible unrelieved foreign tax arising under Case B will always be underlying tax. However, Case A eligible unrelieved foreign tax can be either withholding tax or underlying tax. For example, eligible unrelieved foreign tax that is underlying tax can arise under Case A if a UK company receiving a dividend with, for example, a 30% underlying tax rate has offset its tax trading losses against the overseas dividend income.
'Relievable underlying tax' can only be set off against the UK tax arising on a 'single related dividend' (see D4.921 above) whereas 'relievable withholding tax' can be utilised against both 'single related dividends' and 'single unrelated dividends'1.
In both cases, the set-off can be made against the UK tax liability in the single related (or unrelated) dividend in the same accounting period, accounting periods beginning in the