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HMRC internal manual

Capital Gains Manual

HM Revenue & Customs
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Remittance basis and section 87 gains: payment or transfer of property - example

A is a UK resident and but non-UK domiciled beneficiary of a non-UK resident settlement. The settlement owns shares in X Inc. X Inc is an American company registered on the New York Stock Exchange.

In 2013-14 the trustees sell shares in X Inc for $120,000 when the spot rate is £1 = $1.50. The acquisition cost of the shares was $20,000 when spot was also £1 = $1.50. This creates a section 2(2) amount of £66,666 for 2008-09, ie $100,000 @ 1.50.

In 2013-14 the trustees make a capital payment of $40,000 into A’s US bank account. The spot rate of the US dollar at the date of the payment is £1 = $1.75. A section 87 gain of £22,857 accrues to A in 2013-14 in respect of this capital payment. $40,000 @ $1.75 = £22,857.

A claims the remittance basis for 2013-14 and leaves the $40,000 in the US bank account.

A is not liable to Capital Gains Tax on the section 87 gain of £22,857 because of section 87B.

Because A has claimed the remittance basis they also have to decide whether or not to make an election under TCGA92/S16ZA. The effect of that election is allow losses on the disposal of assets situated outside the UK to be set-off against gains, either foreign chargeable gains or gains on the disposal of assets situated in the UK. Unless the election is made the foreign losses will be lost. An effect of the election is that the annual exempt amount cannot be set against foreign chargeable gains remitted to the UK, section 16ZB(4). A makes a valid election within the time limit, 31 January 2020.

In 2014-15 A remits $30,000 of the $40,000 from the US bank to their UK bank where it is converted to sterling at a rate of £1 = $2.00 ie £15,000. A is not a remittance basis user in 2014-15. The remittance is a disposal of foreign currency in the US bank account but disposals in respect of foreign currency bank accounts by individuals do not produce a chargeable gain. See TCGA92/S252 and CG78321.

The section 87 gain is a foreign chargeable gain. It is treated as accruing in 2014-15 in amount equal to the gains remitted in 2014-15. A has remitted 75% of the £22,857 chargeable gain (30,000/40,000 x £22,857) = £17,142. Because of the election under s16ZA the annual exempt amount cannot be set against these gains.

If A had not made the election under s16ZA the annual exempt amount could be set against the remitted gains. But they would lose the benefit of losses on any assets situated outside the UK.