<b>Tax Feature:</b> Selling the family company - non-residence and tax avoidance. By Nichola Ross Martin

Also, apparently, if you can prove that the purpose of the transaction is to avoid an overseas tax (As opposed to UK), then it becomes a bona fide commercial decision..how ironical...

And regarding this intention of parliament, I thought law is supposed to be precise, who would knows what MPs were actually thinking when laws were made 50, 60, 70 etc years ago...

and will fight it , I suspect, all the way to the Lords. Will Europe become involved in that a UK tax charge is arguably imposed only because of the intention of an individual to emigrate to another EU country. Shades of 'de Laysterie'?

It is noticeable that in the report of SpC 532 Snell v HMRC [on which Nichola has commented] there is no reference to a clearance having been sought under TCGA s138.

The Revenue will, howvere, argue the case if they can show that, even if a s.138 clearance has been sought, the intention to emigrate was present but not disclosed.

S138(5)provides that such a clearance - as it failed 'fully and accurately to disclose all facts and considerations material for the decision' - may be void.

I have certainly had a case where SCO have sought to overturn a s.138 clearance on the grounds that the client might have intended to emigrate, and asked for copies of professional advice given at the time. Their argument was given the appropriate response especially as he is still UK resident !!

In the Snell case it seems to have been accepted without discussion that S.137 looks at the vendors main purpose. Bearing in mind Furniss V Dawson surely the test in S.137 is to consider the purchasers purpose.

That follows from the point that it is the vendor who has a CGT exposure on the sale; the purpose of avoiding liabilty must be the purpose of the person who avoids the tax.

You could construst an alternative in differnt circumstances, if say the vendor says 'I want £x net' leaving the person who is seeking to avoid tax as the purchaser, but that seems unlikely, and clearly did not apply here.

For the sake of completeness, there is a 'de minimis' provision in s137(2) &(3), which applies if the vendor and those to whom he/she is connected has no more than 5% of any class of shares in the target. That is what shelters vendors of shares in listed complanies from the rigours of s.137.

In the day when I did this kind of stuff - the issue of non-residence was always considered.

The actual decision to go non-resident is a lot more complex in reality than it is in the theoretical language of the tax advisors advisory letter.

I know this from personal experience. The 'rules' on non-residence are pretty stringent and it does take a considerable amount of time, effort, organisation and money to successfully go offshore. Both financially and as a family.

This is evidenced by the fact that in Spain - 53% ex-pats return within the first year. Many reasons given but even if you are in an ex-pat enclave, it is much tougher to make a new life. Regardless of how much loot you have stashed away.

I am therefore surprised counsel didn't consider the overall family experience and expectation in advance of making the move. Believe me - the family has a LOT to say.

Taking another tack - with so many people buying property abroad - is it conceivable that motives might be retirement abroad? But I guess in the minds of HMRC that is bound to bring out the question of 'true' motivation?

But to take this further, I'm not sure the logic of the final argument makes sense. If the deal was bona fide then surely that answers the 'scheme' question. You say:

"Counsel for HMRC accepted the applicability of Lord Nolan's definition in this context but contended that but for s 135 capital gains tax would be payable on the contract of sale; Parliament's purpose in enacting s 135 is to allow a person to defer paying tax until he receives cash but not to create an exemption from tax." - this doesn't make sense.

The 'exemption' arose because he went offshore not as a result of the workings of s135. All that happened was that the deferral became permanent. Or is my logic at fault here?

I have a sole trader pharmacist who wants to retire overseas. To minimise tax, the option he is thinking of is to incorporate the business, leave the Uk to become non-resident and then sell the shares in the Limited co afterwards, to avoid CGT.

Assuming he is able to establish non residence and avoids being a temporary non-resident, will the above work ?