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HMRC internal manual

Capital Gains Manual

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HM Revenue & Customs
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Capital Gains manual: individuals: effects of residence, ordinary residence and domicile: temporary non-residents: Arrival in and departure from UK: temporary non-residence: introduction

Before 16 March 1998 if an individual was neither resident nor ordinarily resident in the United Kingdom (UK) during a year of assessment then gains accruing on the disposal of assets during that year were not chargeable to Capital Gains Tax unless the gain was in respect of an asset concerned with a trade, profession or vocation which the individual was carrying on in the UK through a branch or agency. See CG25500+ (trades, professions or vocations carried on in the UK through a branch or agency).

It was therefore often possible to avoid tax by becoming temporarily non-resident for one full year of assessment or more and realising a gain during that absence before resuming UK residence. This risk was addressed by FA 1998 which introduced TCGA92/S10A, and by a complementary revision of extra-statutory concession D2 (ESCD2). After 16 March 1998, and subject to certain conditions, gains arising whilst an individual is temporarily non-resident in the UK are either treated as arising to the individual in the year they resume residence in the UK (under section 10A) or remain chargeable in the year of departure or arrival (where ESCD2 does not apply).

Further amendments were made in Finance Bill 2005 to counter tax avoidance schemes which were designed to exploit the terms of double taxation agreements to secure that little or no tax was charged in respect of such gains. These changes apply where the date of departure from the UK was after 16 March 2005.

The rate of Capital Gains Tax changed part of the way through tax year 2010-11, and so if an individual returns to the UK during that year the exact date on which the gain is to be treated as arising under section 10A may be significant. Finance (No.2) Act 2010 states that gains treated as accruing under section 10A in 2010-11 are to be treated as accruing before 23 June 2010. This means that they will be chargeable to tax at 18%.

A Statutory Residence Test for individuals was introduced for 2013-14 and subsequent years. At the same time, amendments were made to section 10A. If the:

  • the year of departure is 2012-13 or an earlier year, see CG26110+
  • the year of departure is 2013-14 or a later year, see CG26500+ and in particular CG26505.

 

NRCGT was introduced from 6 April 2015 for disposals of interests in residential property located in the UK. See CG73700+