CGT 34 - Non Dom Relief for Capital Losses

Question 1

Where a UK resident but non-domiciled individual is taxed on the arising basis…..

Answer 1

relief is available for losses on foreign assets.

Question 2

Where the remittance basis is claimed, foreign losses are …

Answer 2

not allowable unless a s.16ZA election is made.

Question 3

Advantages of a s.16ZA election

Answer 3

foreign capital losses are available for relief in all tax years thereafter, starting with the year for which the claim is made.
Relief is given both in years when gains are taxed on an arising or a remittance basis.

Question 4

Disadvantages of a s.16ZA election

Answer 4

i. Restriction of the Annual Exempt Amount
ii. Restriction to ‘Carry Back’ of Losses
iii. The ‘Statutory Ordering Rules’ for Offset of Capital Losses

Question 5

What is the restriction to the carry back of losses?

Answer 5

If an individual has elected for their foreign capital losses to be allowable, a capital loss may not be set against chargeable gains taxable on the remittance basis in a tax year after those gains arose.

This means that a loss cannot be ‘carried back’ and set against a remitted foreign gain from an earlier year

Question 6

What are the statutoty ordering rules for the offset of capital losses?

Answer 6

If an individual has elected for their foreign capital losses to be allowable, statutory ordering provisions are brought into play whereby any capital losses (both UK and foreign) must thereafter be offset in the following order:

1. first against foreign gains remitted to the UK;
2. then against unremitted foreign capital gains; and
3. finally against UK capital gains

Question 7

In practice, making a s.16ZA election will mean that:

Answer 7

• unremitted foreign gains must be disclosed on the self-assessment return (even
  if these gains will not be charged in that year); and
• UK gains could be charged in full, because once a s.16ZA election is made, all losses (UK and foreign) must reduce unremitted foreign gains before being relieved against UK gains. If there are several unremitted foreign gains, losses are offset against later gains before earlier gains.

Making a s.16ZA election could mean that UK losses may not be relieved against chargeable gains in the year (which they might be if a s.16ZA claim had not been made).