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HMRC internal manual

Residence, Domicile and Remittance Basis Manual

Remittance Basis: Exemptions: Business investment relief: Certificate of Tax Deposit (CTD) - conditions

There are three conditions to be met to prevent the amount used to make the tax deposit being treated as a remittance:

  • where a tax deposit is used to pay an individual’s Capital Gains Tax liability, it can only be used to pay the liability for the tax year in which the disposal took place.
  • if any part of the tax deposit is withdrawn rather than used to pay the tax liability, to avoid a potential remittance, the amount withdrawn must be taken offshore or reinvested within 45 days of the day on which the withdrawal is made.
  • if the individual has not instructed HMRC to apply the tax deposit to the Capital Gains Tax liability or withdrawn the amount deposited by the date the tax becomes due, the deposit must be withdrawn and taken offshore or reinvested within 45 days starting with the due date of payment of the Capital Gains Tax.
Example 1

Following a part disposal of her holding, Verena calculates the amount of the disposal proceeds that she is able to retain in the UK to meet her Capital Gains Tax liabilities as £176,000 and makes a tax deposit of that amount.

When she submits her tax return the total Capital Gains Tax liability including gains and losses on other disposals is £149,000. Verena asks HMRC to apply the tax deposit to the liability and return the surplus to her. She receives a bank credit for the balance of the tax deposit - £27,000, which she takes offshore 30 days later.

Verena has complied with the CTD conditions. Neither the £149,000 used to settle the Capital Gains Tax liability nor the amount returned to her and taken offshore is treated as remitted to the UK.  

Failure to satisfy CTD conditions

If the CTD conditions described above are not complied with, the amount of the tax deposit affected will be treated as having been remitted to the UK. The affected amount will be treated as remitted immediately after the day on which any breach occurs; normal remittance basis rules will apply.

Example 2

Arkady calculates he is able to make a tax deposit of up to £325,000 in respect of a capital gain that accrued on a partial disposal of a qualifying investment made entirely from his foreign income; he makes a tax deposit of the full allowable amount. A few months later, realising that his final Capital Gains Tax liability will not be this large because of losses, Arkady withdraws £120,000 and immediately takes it offshore.

When Arkady submits his tax return his final Capital Gains Tax liability is £198,000. He instructs HMRC to use the tax deposit to settle this liability, and requests return of the balance of £7,000. He uses the refund to buy a jet ski in the UK.

Arkady has failed to take the surplus tax deposit (of £7,000) offshore; he is treated as having remitted the £7,000 of his foreign income to the UK.  

Any interest arising on tax deposits under the CTD scheme will be taxable as UK investment income.