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HMRC internal manual

Capital Gains Manual

HM Revenue & Customs
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Arrival in and departure from the UK: withholding benefit of ESCD2: HMRC approach

A warning is published as part of the introduction to HMRC’s guide to extra-statutory concessions. This reads as follows.

‘The Concessions described within are of general application, but it must be borne in mind that in a particular case there may be special circumstances which will need to be taken into account in considering the application of the concession. A concession will not be given in any case where an attempt is made to use it for tax avoidance.’

This is sometimes referred to as the ‘health warning’.

For years up to 2012-13 if you are dealing with a disposal after the date of departure from the UK but before the following 6 April, exemption from Capital Gains Tax can arise only by reason of ESCD2. The ‘health warning’ is therefore of relevance to all such cases. Where it can be established that the taxpayer has entered into arrangements in an attempt to use the terms of ESCD2 to avoid liability to Capital Gains Tax which would otherwise arise the Commissioners for HMRC will consider withholding the benefit of ESCD2 under the terms of the ‘health warning’.

The case of Regina v H M Inspector of Taxes, Reading ex parte Fulford-Dobson (60TC168) is an example of a case where the benefit of the concession was withheld because of attempts to use it for avoidance purposes.

In straightforward cases where the contract of sale is delayed until after the date of emigration, see CG25850, the Commissioners for HMRC have decided that they will not withhold the concession merely on the grounds that the disposal was arranged to take place after the date of departure from the UK. On its own, a genuine postponement of the disposal is not regarded as an attempt to use the concession for tax avoidance, but where coupled with other arrangements it might be so regarded.

Where the facts support the withholding of the concession and there is also an argument about the existence of a pre-emigration agreement which could be arbitrated by a hearing before Tribunal (see CG25880 above), the Commissioners for HMRC will normally wish to withhold the benefit of the concession as the primary action.

Individuals may make use of a number of devices to cause at least part of the gain to appear to arise after the date of departure (up to 2012-13) or the end of the UK part of a split year (for 2013-14 onwards). Some of the possibilities are listed in CG26020-CG26061 below. It may be possible to counter some of the devices by withholding the benefit of ESCD2.

Specialist PT (Capital Gains Technical Group) in Solihull will be pleased to advise on any of these types of case. Also you conclude that your case is one where the benefit of ESCD2 should be withheld you MUST submit your papers to Specialist PT (Capital Gains Technical Group) in Solihull before any mention of this is made to the taxpayer.