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This publication is available at https://www.gov.uk/government/publications/temporary-non-residents-and-capital-gains-tax-hs278-self-assessment-helpsheet/hs278-temporary-non-residents-and-capital-gains-tax-2019
This helpsheet explains the treatment of gains accruing during a period of temporary non-residence. But it’s only an introduction. If you’re in any doubt about your circumstances you should ask your tax adviser. We’ll also be pleased to help you and provide any forms you may need. You can also consult our Capital Gains Tax Manual, which explains the rules in more detail.
This helpsheet will help you fill in the Capital Gains Tax summary pages of your tax return.
There can also be tax payable on certain income accruing during a period of temporary non-residence. This is explained in the section ‘temporary non-residents and income tax’ below.
Liability to Capital Gains Tax and residence in the UK
Individuals are normally charged Capital Gains Tax (CGT) on the gains on disposal of assets if they’re resident in the UK. For 2013 to 2014 and later years an individual’s residence status is determined by the rules within the Statutory Residence Test (SRT). The SRT rules also provide that a tax year may be split into a UK part and an overseas part. CGT would normally only apply to gains arising in the UK part of a split year. RDR3 Guidance Note: Statutory Residence Test (SRT) has detailed information about the SRT.
However an individual who is not resident in the UK may be taxed on gains if they dispose of:
- Assets which are (or have been) used by a trade they carry on in the UK through a branch or agency (see CG25500P for further information).
- An interest in UK residential property (see Tell HMRC about Capital Gains Tax on UK residential property if you’re non-resident for further information).
Subject to this, an individual who left the UK to live abroad and ceased to be resident in the UK will not be chargeable on gains made in years of assessment after they left the UK, unless their non-residence was temporary and they resume tax residence in the UK within a certain time.
What’s meant by temporary non-residence
This helpsheet gives an overview of the rules for an individual returning to the UK in 2018 to 2019. Generally, the rules will apply where an individual meets the following conditions:
- They had ‘sole UK residence’ for either the whole or a part of at least 4 out of the 7 tax years preceding the year of departure.
- They had a ‘residence period’ that was not ‘sole UK residence’ in between 2 periods of ‘sole UK residence’.
- The total of the ‘residence periods’ that were not ‘sole UK residence’ did not exceed 5 years in length.
For these rules, the temporary period of non-residence may start or end within a tax year due to the ‘split year’ treatment (see section 5 of RDR3).
Important concepts within these rules are those of ‘sole UK residence’ and ‘residence period’. These are explained in section 6 of RDR3.
So, an individual who ceased to be UK resident in 2012 to 2013 or earlier and does not become UK resident again until 2018 to 2019 will not be within the scope of the rules. If you were away from the UK for a shorter period, you may need to consider the detailed rules. Further discussion of these is available in the Capital Gains Tax Manual (CG26500+) and section 6 of RDR3.
Temporary non-residence and CGT
If an individual whose year of return to the UK is 2018 to 2019 meets the conditions for temporary non-residence outlined above, then certain gains and losses arising during their period of temporary non-residence are treated as arising in 2018 to 2019. Such gains will therefore be taxed, with losses also becoming allowable, in 2018 to 2019.
Mr Smith, who has lived all his life in the UK, left the UK on 25 March 2014 for a contract of employment abroad. He returned to the UK and resumed residence in the UK on 2 February 2019.
He realised a chargeable gain (on an asset acquired before he left the UK) of £35,000 on 15 September 2014. Mr Smith fulfils all of the residence conditions in section 10A TCGA 1992:
- he has resumed UK residence in 2018 to 2019 (the year of return)
- there’s a period not exceeding 5 years immediately before non-sole UK residence where he was not resident in the UK
- he had sole UK residence for at least 4 out of the 7 tax years immediately prior to his year of departure (in this example, in fact, all 7)
Mr Smith will be chargeable on this gain in the tax year of return to sole UK residence (2018 to 2019) on the gain of £35,000.
If the individual is non-domiciled and claims the remittance basis in 2018 to 2019, then any foreign chargeable gains accruing and remitted to the UK during the period of temporary non-residence become chargeable in the year of return.
Other countries may have different financial years and residency rules, so an individual may be resident in the UK under its domestic law as well as resident in another country under its law. Where an individual is a resident of both countries, the double taxation agreement (DTA) between the countries will provide tie-breaker rules to enable residence for the purposes of the agreement to be determined.
Whole tax years, or UK parts of split years, where an individual is regarded as non-UK resident in accordance with a double taxation treaty, form part of the period of non-UK residence for the rules determining whether an individual was temporarily non-resident (see CG26680 and, for examples, CG26690)
What gains and losses are included
Some gains and losses arising during periods of temporary non-residence are not within the scope of these rules. An individual may acquire assets after leaving the UK for a period of temporary residence abroad. If such assets are disposed of in that period, any gains or losses on such assets are not normally treated as arising when UK residence is resumed.
Continuing with Mr Smith from example 1, on 6 June 2014 Mr Smith bought 20,000 shares in a UK company. He sold all of the shares on 15 March 2015, realising a gain of £12,000. Mr Smith is within the temporary non-residence rules, but because the shares were acquired after his departure from the UK the gain is not treated as arising in the year of return.
While gains and losses on assets acquired after leaving the UK are in general excluded from the scope of the temporary non-residence rules, there are some important exceptions to this exclusion. Some assets acquired after the period of non-sole UK residence begins, have a connection with the earlier period of sole UK residence. Gains accruing on the disposal of such assets during a period of temporary non-residence are not excluded, they would be chargeable in the tax year of return.
These exceptions fit into 3 categories:
- assets acquired from another person who themselves acquired them under no gain or no loss rules (see CG26610)
- assets which have had their acquisition cost reduced by a rollover relief given on the disposal of another asset which had been acquired by the individual (see CG26630
- gains or losses which represent those on an asset held before the individual left the UK that were deferred until another asset was disposed of - when that other asset is disposed of, crystallizing the gain during the period of temporary non-residence, it will be chargeable in the period of return (see CG26630)
Gains of non-resident companies and settlements
Gains accruing to a company or a settlement during the period of non-residence may also need to be considered when UK residence is resumed. These are:
- gains accruing to a closely controlled non-resident company, attributed to UK resident participators in proportion to the extent of their participation (see CG57200P)
- gains accruing to settlor-interested non-resident settlements that are attributed to a UK resident and domiciled settlor (see CG38430P and HS299) - the amount charged on the temporarily non-resident settlor may be reduced if gains have also been charged on UK resident beneficiaries (see CG26590)
- capital payments matched to the gains of non-resident trustees (see CG38570C and HS301)
Where such gains arose in the temporary period of non-residence and would have been chargeable on the individual had they been UK resident, they are treated as accruing in the period of return. Where the remittance basis may be relevant, see CG26650 onwards.
Double Taxation Relief
In some cases the temporary non-residence rules may mean that a gain is taxed in another country in the year that it arises and then in the UK for the year of return. If tax has been paid on the gain in another country, you may be able to claim relief for double taxation.
HS263 Relief for Foreign Tax Paid explains this further and provides details on how to claim.
Temporary non-residents and Income Tax
Certain types of income received during the period of temporary non-residence will also be treated as arising in the year of return, therefore being taxable in 2018 to 2019. These are:
- withdrawals from a flexible drawdown pension fund (EIM74050)
- certain lump sums paid under an employer-financed retirement benefit scheme (EIM15010)
- lump sum payments comprising a ‘relevant step’ under the disguised remuneration rules (EIM45000), or for remittance basis users, the remittance of such an amount
- certain lump sums paid by UK pension schemes in respect of which a charge on receipt is removed by a double taxation agreement (EIM74060)
- certain taxable property deemed income and gains of a pension scheme charged to tax on a scheme member (PTM125000)
- relevant foreign income that is chargeable on the remittance basis of assessment and is remitted to the UK in the period of temporary non-residence - such relevant foreign income is treated as remitted to the UK in the period of return (RDRM31140)
- distributions paid by close companies (or those that would be close, if they were UK resident) of which you are a material participator or their associate, in the case of distributions that are dividends, those out of trade profits arising in the temporary period of non-residence are not taxable - ‘Distributions’ includes dividend income received by a person abroad which you have power to enjoy, under the Transfer of Assets Abroad code (HS262)
- loans to participators of close companies that are released or written off but not taxable at that time under the terms of a double taxation agreement (CTM61657)
- gains on life insurance, life annuity or capital redemption policies (IPTM3300), for these gains, time apportionment is available for the period of non-residence (IPTM3734)
- Offshore Income Gains (OFM17100), except for those accruing from assets both acquired and disposed of in the period of temporary non-residence, which are not linked with an earlier period of residence (see the section What gains and losses are included above)
For more information about online forms, phone numbers and addresses contact Self Assessment: general enquiries.