Inland Revenue 20
17 March 1998
CAPITAL GAINS TAX: TEMPORARY NON-RESIDENCE
The Chancellor proposes to make capital gains tax fairer by
amending the rules which at present enable taxpayers to avoid
a tax charge by selling assets during a period of temporary
residence abroad.
Individuals who have acquired assets before they leave the
United Kingdom for a period of residence abroad of less than
five complete tax years will remain chargeable to capital
gains tax on gains made on those assets while abroad. Gains
realised in the tax year of departure will be charged for that
year. Subsequent gains will be charged in the tax year of
return.
The new rules will apply to individuals who leave the United
Kingdom for tax residence abroad on or after today.
DETAILS
1. At present capital gains tax applies only to individuals
who are resident or ordinarily resident in the United
Kingdom. A taxpayer who goes abroad is not chargeable on
gains made while he is not resident and not ordinarily
resident, even though he may resume tax residence in this
country after a period of only two or three years.
2. In future individuals who
have been tax resident here for any part of at least four
out of the seven tax years immediately preceding the
year of departure, and
become not resident and not ordinary resident for a
period of less than five tax years, and
own assets before they leave the United Kingdom
will be liable to tax on any gains realised on those
assets after departure from the United Kingdom.
3. Gains made by such an individual in the year of
assessment in which he or she leaves the country will be
chargeable for that year. Gains made after that will be
chargeable in the year of assessment in which the
taxpayer resumes residence here. Losses will be allowable on
the same basis as gains are chargeable.
4. Any gains made in the intervening years (i.e. the years
between the tax year of departure and the tax year of return)
on assets acquired by the taxpayer after becoming tax
resident abroad will be exempt from the charge. This
exemption will not apply to assets held in a non-resident
trust or closely controlled non-resident company. Rules will
be introduced to prevent gains on assets held before
departure from escaping the charge, where the gains are
rolled-over or otherwise deferred on the acquisition of assets
during the period of absence.
5. In applying the charge full regard will be had to the
terms of any tax treaty with the country in which the
taxpayer is resident at the time the gain is made.
6. As a consequence of these changes an extra-statutory
concession (ESC D2) which enables the years of commencement
and cessation of residence in the United Kingdom to be split
for capital gains tax purposes will be amended to take
account of the proposed new legislation. The revised extra
statutory concession will apply to any individual who ceases
to be resident or ordinarily resident in the United Kingdom
on or after today, or becomes resident or ordinarily resident
on or after 6 April 1998. The text of the revised concession
is attached as an annex to this press release.
NOTES FOR EDITORS
1. The proposed new legislation will apply to gains arising
in the tax years between a taxpayer's departure from, and
arrival back, in the United Kingdom as a result of a period
of temporary residence abroad.
2. Gains made in the tax years of departure and arrival are
chargeable under the existing law. However, there is an
extra-statutory concession (ESC D2) which allows these tax
years to be split in certain circumstances for capital gains
tax purposes. It provides that any gains made by an
individual after his departure for tax residence abroad are
not chargeable to capital gains tax for the tax year of
departure. It also provides that any gains made by an
individual before arrival for tax residence here are not
chargeable for the tax year of arrival, but only provided the
individual has not been resident here at any time during the
period of 36 months immediately preceding the date of arrival.
3. The extra-statutory concession is being amended, with
effect from today for departures and from 6 April 1998 for
arrivals, broadly to reflect the terms of the proposed new
legislation.
4. An extra-statutory concession is a relaxation which gives
taxpayers a reduction of liability to which they are not
entitled under the strict letter of the law. Most
concessions are made to deal with what are, on the whole,
minor or transitory anomalies under the legislation and to
meet cases of hardship at the margins of the code where a
statutory remedy would be difficult to devise or would run to
a length out of proportion to the intrinsic importance of the
matter.
5. Inland Revenue extra-statutory concessions are of general
application, but in a particular case there may be special
circumstances which must be taken into account in considering
the application of a concession. A concession will not be
given in any case where an attempt is made to use it for tax
avoidance.
6. Details of current Inland Revenue concessions are
published in a free booklet IR1, available from any Tax
Enquiry Centre or Tax Office. They are also available form
the Inland Revenue Information Centre, South West Wing, Bush
House, Strand, London, WC2B 4RD. The revised concession
published today will be included in a later edition of the
booklet.
INLAND REVENUE PRESS OFFICE
ANNEX
REVISED EXTRA STATUTORY CONCESSION (D2)
Residence in the United Kingdom: year of commencement or
cessation of residence: capital gains tax
1. An individual who comes to live in the United Kingdom and
is treated as resident here for any year of assessment from
the date of arrival is charged to capital gains tax only in
respect of chargeable gains from disposals made after
arrival, provided that the individual has not been resident or
ordinarily resident in the United Kingdom at any time during
the five years of assessment immediately preceding the year
of assessment in which he or she arrived in the UK.
2. An individual who leaves the United Kingdom and is
treated on departure as not resident and not ordinarily
resident here is not charged to capital gains tax on gains
from disposals made after the date of departure, provided
that the individual was not resident and not ordinarily
resident in the United Kingdom for the whole of at least four
out of the seven years of assessment immediately preceding
the year of assessment in which he or she left the UK.
3. This concession does not apply to any individual in
relation to gains on the disposal of assets which are
situated in the United Kingdom and which, at any time between
the individual's departure from the United Kingdom and the
end of the year of assessment, are either:
(i) used in or for the purposes of a trade,
profession or vocation carried on by that
individual in the United Kingdom through a branch or
agency; or
(ii) used or held for, or acquired for use by or for
the purposes of, such a branch or agency.
4. This concession does not apply to the trustees of a
settlement who commence or cease residence in the United
Kingdom or to a settlor of a settlement in relation to gains
in respect of which the settlor is chargeable under sections
77-79 TCGA 1992, or section 86 and Schedule 5 TCGA 1992.
5. This revised concession applies to any individual who
ceases to be resident or ordinarily resident in the United
Kingdom on or after 17 March 1998, or becomes resident or
ordinarily resident in the United Kingdom on or after 6 April
1998.