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HMRC internal manual

Residence, Domicile and Remittance Basis Manual

HM Revenue & Customs
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Remittance basis: chargeable gains on sales of exempt property (ITA07/s809YD)

A chargeable gain or allowable loss can arise when exempt property is sold in circumstances which meet all the conditions A to F in ITA07/s809YA. For sales of exempt property which take place on or after 6 April 2012, any gain will be treated as a foreign chargeable gain provided the individual is not domiciled in the UK. This gain will be subject to the existing remittance basis rules and will be taxable if it is subsequently remitted to the UK.

Example 1

Dave, a non domiciled remittance basis taxpayer, brings a painting to the UK to display at a museum. He originally purchased it using £150,000 of foreign income. Dave accepts an arms length offer to sell the painting in the UK for £200,000 and takes the entire proceeds offshore within 45 days. He has met Conditions A-F and the £150,000 foreign income Dave purchased the painting with is not treated as remitted to the UK. Dave’s gain of £50,000 on the sale is treated as a foreign chargeable gain. The £200,000 proceeds taken offshore will be a mixed fund consisting of £150,000 foreign income and a £50,000 foreign chargeable gain.

Some individuals do not need to make a remittance basis claim because they have no UK income or gains and do not remit any foreign income and gains (refer to RDRM32140). For those individuals, the foreign chargeable gain will not be treated as part of their UK income and gains (ITA07/s809YD(2)(b)).

Where an allowable loss accrues on the sale, the loss will be treated as a UK loss and available to be used against any UK gains under existing rules for capital losses.

Where an individual has unremitted foreign income and gains of less than £2,000 they can be taxed on the remittance basis without making a claim (see RDRM32110). Such individuals do not lose access to personal allowances or their annual exempt amount and are not required to pay the annual remittance basis charge regardless of the length of time they have been resident in the UK. Where an individual sells exempt property giving rise to a chargeable gain, treating the gain as a foreign chargeable gain might mean their total unremitted foreign income and gains exceed the £2,000 limit in the year of sale. The individual would need to make a claim to be taxed on the remittance basis under ITA07/s809B and become liable to pay the remittance basis charge if they wanted access to the remittance basis.

An individual can therefore elect for the foreign gain arising on the sale of exempt property to be treated as a UK chargeable gain. This election must be made in writing to HMRC, identifying the gain in question on or before the first anniversary of the 31 January following the tax year in which the gain is treated as accruing. This election is irrevocable once that anniversary has passed. (s809YD(9) and (10))

Example 2

Georgina is a non domiciled remittance basis taxpayer who has been resident in the UK for 9 years. For the last few years, her only foreign income has been investment income of less than £2,000 per annum so Georgina has accessed the remittance basis under ITA07/s809D. In 2012-13 Georgina brings a piece of modern art, purchased overseas using £10,000 of her foreign income, to the UK and sells it at auction for a net £25,000 making a gain of £15,000. Georgina takes the entire sales proceeds offshore within 45 days of receiving them. The conditions for relief in ITA07/s809YA have been met and the £10,000 foreign income the art is derived from is treated as not remitted to the UK.

Under ITA07/s809YD the chargeable gain of £15,000 would be regarded as a foreign chargeable gain of Georgina’s. However, that would mean Georgina’s unremitted foreign income and gains for 2012/13 would be over £2,000. As a long term UK resident, if Georgina made a claim to the remittance basis for 2012-13 she would have to pay the remittance basis charge of £30,000. Her only other foreign income in 2012-13 is investment income of £1,575 and she had no other foreign gains.

When submitting her Self Assessment tax return for 2012-13, Georgina elects, in writing, for the deemed foreign chargeable gain to be treated as a UK gain. As Georgina’s unremitted foreign income and gains are the investment income, which is less than £2,000, she does not have to pay the £30,000 remittance basis charge. She also does not lose her personal allowances or capital gains tax annual exempt amount. The annual exempt amount will be available to reduce the tax liability on the £15,000 chargeable gain.