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HMRC internal manual

Residence, Domicile and Remittance Basis Manual

Remittance Basis: Exemptions: Business investment relief: Certificates of tax deposit (CTD)

HMRC operates a general Certificate of Tax Deposit scheme. Under the scheme a taxpayer can make tax deposits in advance of tax liabilities becoming due and payable. For information about how to make a tax deposit refer to our website (The Certificate of Tax Deposit Scheme)

An individual, claiming business investment relief, who sells the whole of their investment at a gain, will usually have sufficient proceeds to take the mitigation steps and to pay any Capital Gains Tax on the gain made. That is because, in order to take the appropriate mitigation steps [see RDRM34440], they are only required to take the original invested amount outside the UK and can leave the “gain” element in the UK to pay any resulting tax liability.

However, in the case of a partial disposal where the proceeds received from the sale are less than the amount originally invested, the whole of the disposal proceeds must be taken outside the UK or reinvested in order to take the appropriate mitigation steps. In such a case, there may be no funds available in the UK to pay any resulting Capital Gains Tax liability.

Example 1

Kylie’s initial qualifying investment is £100,000 for which she receives 10,000 shares.

Two years later she sells 5,000 shares for £80,000 giving rise to a capital gain of £30,000 on which she calculates the maximum Capital Gains Tax payable would be £8,400. The proceeds are less than the sum originally invested (£100,000) so the whole of the £80,000 must be taken offshore or reinvested in order to take the appropriate mitigation steps. If Kylie does not have sufficient UK funds to pay the Capital Gains Tax liability she could have to remit offshore funds to the UK, which themselves could become taxable as a remittance.  

The CTD scheme can be used in situations such as this in order to pay the UK Capital Gains Tax. When taxpayers use some of the proceeds of their disposal to make a tax deposit, which must be made within 45 days of the disposal proceeds being paid [see RDRM34480], the amount of the disposal proceeds that must be taken offshore or reinvested in order to take the appropriate mitigation steps is reduced by the amount of the tax deposit. (s809VK ITA2007)

Example 2
Following on from the example above, Kylie makes a tax deposit of £8,400 ten days after receiving the disposal proceeds. The amount that Kylie must take offshore or re-invest in order to carry out the mitigation steps is now £71,600 (£80,000 less £8,400); Kylie has a further 35 days to reinvest this sum or take it offshore.  

For information on the amount the taxpayer can deposit see RDRM34510, and for the conditions that must be met in relation to this deposit [see RDRM34520].