Chapter 25 Foreign Aspects of CGT Flashcards
sale of UK and foreign assets,
In general, if an individual is resident in the UK, they will pay CGT in the UK, if they are not resident, they will not pay CGT in the UK.
Sales of UK assets – if an individual resident in the UK sells a UK asset, they will be chargeable to UK CGT. If a non-resident individual sells a UK asset, they will not be subject to CGT in the UK.
Sales of foreign assets – if a foreign asset is disposed by an individual who is resident and domiciled in the UK, they will pay UK CGT, this is also the case for individuals who are deemed domiciled in the UK. A capital loss on a disposal of foreign assets will also be allowable in the UK for these individuals. If a non-resident individual sells a foreign asset that is not chargeable.
For individuals who are resident but not domiciled the rules are more complicated. These individuals can elect the remittance basis to apply in respect of overseas income and gains. If this election is made, the individual is only taxed on foreign gains to the extend the gain is remitted to the UK. A taxpayer claiming the remittance basis is not allowed to claim an annual exempt amount. If a remittance basis claim is not made the annual exempt amount can be claimed, but this cannot be set against remitted gains which accrued in earlier tax years. If an individual has foreign gains of less than £2,000 for a tax year the remittance basis automatically applies, and the individual is still entitled to the annual exempt amount and the personal allowance.
Non-domiciled individuals - remittance basis charge, split year and temporary non residence
Non-domiciled individuals – remittance basis charge – individuals who are non-UK domiciled, over 18, have been resident in the UK for 7 out of the 9 tax years, claim the remittance basis have to pay a £30,000 annual remittance basis charge, this is in addition to any tax due on foreign income and gains remitted to the UK. The charge is increased to £60,000 is the individual has been resident for 12/14 tax years. Non-domiciled individuals can choose whether to claim the remittance basis or pay tax on worldwide income and gains each year.
Split year – the statutory residence test allows a tax year to be split into a UK part where the individual is UK resident and an overseas part where they are not UK resident. By splitting the tax year, the individual will generally not be charged UK CGT on gains accruing in the overseas part of the year.
Temporary non-residence – an individual is regarded as temporarily non-resident if the individual becomes non-resident, they were resident for 4/7 tax years preceding departure and the period of non-residence is 5 years or less.
If an individual is temporary non-resident and returns to the UK and becomes UK resident again, any capital gains made will be taxed on the year of return and losses will become allowable. The temporary non-residence rules do not apply to assets which were acquired by the taxpayer during the temporary period of non-residence. The annual exempt amount whilst the taxpayer is abroad is wasted and is available again once they become UK resident again.
Disposals of interests in UK land by non-residents
Disposals of interests in UK land by non-residents – non-UK residents usually are not chargeable to CGT. There are some exceptions to the rule. Since 6 April 2015 UK CGT is charged on disposals of UK residential property by non-UK resident individuals. When the residential property is disposed of, only part of the gain is chargeable. There are three methods for calculating the gain:
• The default method – requires property to be valued (rebased) at 5 April 2015. The gain is the difference between the sale proceeds and the value at 5 April 2015.
• The straight line time apportionment method – calculates the gain by deducting the original cost from the sale proceeds. The resulting gain or loss is then time apportioned with only the post 5 April 2015 proportion being charged or allowed
• The retrospective method – this calculates the gain or loss by deducting the original cost from the sale proceeds
The default method applies unless the taxpayer elects to use the alternative methods. Elections are made on a disposal-by-disposal basis. If the property was acquired after 6 April 2015 the whole gain is chargeable. From 6 April 2019 disposals of UK land (which includes buildings) by non-UK residents are subject to UK CGT. Only part of the gain arising after 6 April 2019 is chargeable. For UK land the default method is used, but the individual can elect for the retrospective method to be used.
Indirect disposals of interests in UK land by non-residents
Indirect disposals of interests in UK land by non-residents – from 6 April 2019 a non UK resident is chargeable to UK CGT in respect of the disposal of shares in a company whose interests in UK land make up at least 75% of its gross assets at disposal. The gain is only chargeable if the non-resident owns at least 25% of the company at any point in the two years prior to disposal. Also, if at the time of disposal at least 90% of the land owned by the company is used for a qualifying trading purpose, the gain on the disposal is not chargeable. The default method is used, but the individual can elect for the retrospective method to take place, but if the retrospective method is used, any capital loss arising is not allowable.
Direct and indirect disposals of interests in UK land by non-residents other points – disposals of interests in UK land are referred to as non-resident CGT disposals (NRCGT). NRCGT gains can only be reduced by NRCGT losses of the current or previous tax years. If an individual becomes UK resident, any unused NRCGT losses can be set against general chargeable gains. The annual exempt amount can be deducted from NRCGT gains.
returns and payments fo NRCGT disposals and the situs rules
Returns and payments for NRCGT disposals – they must be disclosed on a specific return within 30 days of the date of disposal. The exception is if the disposal is already reported on a self-assessment return. A payment on account for CGT due must be made 30 days after completion.
The Situs rules – the remittance basis only applies to assets which are situated outside the UK.
Assets such as land and buildings are situated in the country they are physically located, this is the same for chattels. Shares in a company which is incorporated in the UK are situated in the UK for CGT purposes. Shares in companies listed or registered that are not incorporated in the UK, are located where the share register is kept. Goodwill is situated where the trade of the business is carried. Assets such as gilts or other government stocks are situated where the government building is.
