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HMRC internal manual

Capital Gains Manual

HM Revenue & Customs
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Remittance basis: gains reinvested in non UK assets

In most circumstances it is easy to see that a gain has been remitted. For example Mr D, who is resident in the UK but is not domiciled here, sells assets located outside the UK for $100,000. This includes a gain computed in sterling of £10,000. If he transfers the $100,000 to the UK the gain has clearly been remitted.

On other occasions it may not be so easy to see that the gain has been remitted. For example, suppose Mr D in the example above invests the $100,000 sale proceeds in purchasing land in America. Suppose he later sells this land for $120,000 which includes a gain of £5,000 calculated in sterling. If he now transfers the $120,000 to the UK what amount of gain should he be treated as remitting?

It has been decided in cases concerning the remittance of income arising abroad that such income does not lose its character on being invested. It can be traced through the investments made in order to decide if and when it has been remitted. See the cases of Walsh v Randall (23TC55) and Patuck v Lloyd (26TC284)). You should apply the same principles to capital gains. Therefore, if a gain is not immediately remitted but is instead invested in other assets, in order to decide if a gain has been remitted the gain should be traced through any transactions carried out with the sale proceeds until it is established if a remittance has taken place. Such tracing of gains can be carried through any number of investments, deposits to bank accounts, transfers between accounts etc.

In the example above the gain of £10,000 should be traced through to the investment of $100,000 in land that was made. When the ultimate sale proceeds of that land of $120,000 are remitted to the UK you should contend that both the gain of £10,000 on the first disposal and a gain of £5,000 on the second disposal have been remitted at that time.