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HMRC internal manual

Capital Gains Manual

Non-resident companies: computation of TCGA92/S13 charge: example 3


  • a non-resident company has issued share capital of 100 Ordinary shares
  • A and B each own 50 shares
  • A and B are both resident in the UK
  • A is a loan creditor for 200,000. No interest is payable on the loan
  • the non-resident company realises a gain of 500,000
  • the total capital of the non-resident company after the gain is 1,000,000.

Capital Gains Tax computations

You compute the TCGA92/S13 charge as follows.

Step 1

Calculate the gain that would have arisen if the non-resident company had been resident in the UK. This is 500,000.

Step 2

Determine the interests of all participators, including any who are not resident in the UK, by applying the tests of participation appropriate to the circumstances.

A is a 50% participator by reference to the shareholding of 50 shares

B is a 50% participator by reference to the shareholding of 50 shares

A is also a participator as a loan creditor, being entitled to an amount of 200,000 out of the total capital of 1,000,000. If all of the assets of the company were to be distributed immediately after the accrual of the gain the entitlements of A and B would be:

A: 200,000 (as loan creditor) plus 50% of the balance of 800,000 (as shareholder), a total of 600,000 or 60% of the assets.

B: 400,000, 50% of the balance of 800,000 (as shareholder), or 40 % of the assets.

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Step 3

Calculate the proportion of the gain apportionable to the interests of each participator. In this case there are two possible apportionments.

A: 500,000 x 50% = 250,000

B: 500,000 x 50% = 250,000


A; 500,000 x 60% = 300,000

B: 500,000 x 40% = 200,000

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Step 4

Consider whether the gains calculated in Step 3 represent a just and reasonable apportionment. As there are at least two possible apportionments we must consider all of the facts relating to the arrangements under which A’s loan was made and the arrangements regarding profits and gains of the company. For instance:

  • Does the loan agreement give A any preferential rights to profits or gains, or simply to a repayment of the capital?
  • Is B entitled to an equal share of profits or gains?

In such cases there is no easy answer and a full consideration of all of the relevant circumstances is necessary. On the bare facts of this example A has no preferential rights and consequently an apportionment by reference to the shareholdings, effectively excluding A’s participation as loan creditor, may be just and reasonable. If so, the gain would be attributed

A: 500,000 x 50% = 250,000

B: 500,000 x 50% = 250,000.