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Dual Resident CGT – Gain subject to UK tax

Is UK tax due on a gain from the disposal of Turkish property made by a UK-Turkey dual tax resident?

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I have a client who is resident for tax purposes in both UK and Turkey.

He has made a disposal of a residential property in Turkey in which a gain has arisen.

TCGA 1992 s1A gives the UK taxing rights on worldwide disposals for UK tax residents:

“A person who is UK resident for a tax year is chargeable to capital gains tax on chargeable gains accruing to the person in the tax year on the disposal of assets wherever situated.”

 

Under the UK - Turkey double tax agreement, he would be deemed a Turkish resident for treaty purposes. This takes us to Article 13 which deals with capital gains. I’m exuding paragraphs 2 and 3 as they aren’t relevant to the situation.

ARTICLE 13

Capital gains

(1) Gains derived by a resident of a Contracting State from the alienation of immovable property referred to in Article 6 of this Agreement and situated in the other Contracting State may be taxed in that other State.

(4) Gains from the alienation of any property other than that referred to in paragraphs (1), (2) and (3) of this Article shall be taxable only in the Contracting State of which the alienator is a resident. However, such gains which arise in a Contracting State from the alienation of property within a period of one year from the date of its acquisition may be taxed in that State.

 

If he was UK resident under the treaty, then the answer is a straight yes, he is subject to UK tax. But the fact he is Turkish resident under the tie breakers has me doubting the position.

Given he is a Turkish resident for treaty purposes, neither of these paragraphs seem to cover the situation we have (a Turkish resident disposing of Turkish immovable property).

That being the case, does that simply mean that as my client is a UK tax resident under UK law, and as the double tax agreement does not provide any form of relief or exemption, he is therefore subject to UK tax on his gain?

Edit: for clarity, we have been advised that there is no tax due in Turkey on this gain - something to do with him having owned the property 5 years. Therefore there is no foreign tax avaialble to offset if there is UK tax due. 

Replies (58)

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Replying to Wilson Philips:
Lone Wolf
By Lone_Wolf
05th Sep 2019 15:58

I've just been on the webchat with one of their support agents and raised the point which is being passed to the editors.

As you point out, unusual for the Croner-i stuff to be off.

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Replying to Lone_Wolf:
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By Tax Dragon
05th Sep 2019 16:03

I'll unsay my Tut-tut.

.tut-tuT

Oh bother, it's a palindrome.

Thanks (1)
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By Tax Dragon
05th Sep 2019 16:27

Wilson, Wolf... do your Croner-i subscriptions include "Schwarz on Tax Treaties"?

Ours doesn't. ¶10-250 is apparently relevant.

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Replying to Tax Dragon:
Lone Wolf
By Lone_Wolf
06th Sep 2019 09:34

Unfortunately, ours doesn't stretch to that either. I get part of the first paragraph, followed by the dreaded "Want to read more?" message.

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Replying to Tax Dragon:
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By unearned luck
09th Sep 2019 00:47

Mine does.

10:250 discusses in detail the limited way in which the law gives effect to treaties, different taxes are brought into effect in different ways and to different extents. It includes the 'surprising' amount to litigation on this point. The courts have generally taken a narrow approach and have refused to enforce many articles, to the extent that a Special Commissioner that conclusions that certain article had no effect in UK law amounted to a breach by the UK of its treaty obligations. for example in R v Inland Revenue Commissioners, ex parte Commerzbank AG, the IRC had refused to give repayment supplement to the taxpayer (a German resident). The Court accepted that the taxpayer had been discriminated against but refused to apply the non-discrimination art of the UK/Germany treaty.

But the unsatisfactory and limited way in which treaties have been incorporated into domestic law discussed in 10:250 does not seem relevant to me as CGT articles have been given explicit effect.

Re the missing 'only'. What does the Turkish text of the treaty say?

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Replying to unearned luck:
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By Tax Dragon
09th Sep 2019 10:09

unearned luck wrote:

Re the missing 'only'. What does the Turkish text of the treaty say?

Priceless. Are we seriously to self assess by reference to foreign translations of documents?

PS, thanks for the quote. Very interesting.

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Replying to Tax Dragon:
Psycho
By Wilson Philips
10th Sep 2019 08:08

I don't think that anyone is suggesting that we need to refer to the foreign language equivalent. 2 out of 3 is good enough for me. That said, it would be interesting to know, given that someone does have the text wrong - almost certainly Croner-i but it would be good to know for certain.

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Replying to Wilson Philips:
Lone Wolf
By Lone_Wolf
16th Sep 2019 16:24

I raised it with Croner-i at the time, and when you access the relevant section now, it is updated to "only", so it's safe to say that the Croner-i version was wrong.

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