non-residence & CGT

non-residence & CGT

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My client is selling up his business and even after BATR has a substantial potential taxable gain. As he intendds to move abroad permanently, it seems timing could be key to cancelling his CGT bill, so long as he does not return within 5 years.

Can anyone give me tips on pitfalls to avoid in this scenario, since he seems genuinely able to take advantage of the non-residence exemption, for example how to establish non-residence? should he pre-notify Inland Revenue or wait until the appropriate tax return is submitted? and is my reading correct that he would need to leave the uk in the tax year BEFORE he made the gain?

Any help much appreciated.
Nigel Wayne

Replies (3)

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By AnonymousUser
21st Dec 2004 16:52

To answer one specific point
Nigel

You may be aware that the Inland Revenue, by concession, operates a split year treatment for gains realised in the year of departure. This means that, in general, gains realised before departure are liable to UK CGT, but gains realised in the tax year of departure, but after leaving the UK, are not liable to CGT.

BUT

If avoidance is an issue the Inland Revenue may decide not to apply the concession, which means that all gains in the year of departure (whether before or after leaving the UK) are liable to UK CGT. It is for this reason that it is often suggested that any sales should not take place until the year following the year of departure.

As John points out there are a number of areas of concern, particularly where the assets have been used for the purposes of a trade, and you should seek appropriate assistance.

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By Jon Stow
21st Dec 2004 13:51

Elephant trap
Nigel

This is a potentially complex area and there is not room to write the book here. It seems you do not have sufficient experience to deal with these issues on your own because:

1. If the gains are so huge that your client finds it necessary to avoid capital gains tax of only 10% then your PI policy needs to be substantial.
2. Unless your client is going to live in a tax haven there will very likely be capital gains tax payable in his new country of residence which may be more than the potential UK tax liability.
3. If your client is that keen on avoidance (I will not get into the moral argument as other contributors already have enough to say) then there may be measures to be taken involving choosing a country to go to whilst the business is sold.
4. There are lots of pitfalls and not room to explain all the aspects of not being ordinarily resident in order to fall outside the UK tax regime.

The bottom line is that you need to swallow your pride and take your client to seek specialist advice.

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By AnonymousUser
22nd Dec 2004 09:15

Don't forget...

...by s10 TCGA, non-residents are also subject to UK capital gains tax if they carry on business here through a branch or agency (but only in respect of the branch or agency assets).

So becoming non-resident really makes no difference to the owner of an unincorporated business such as a sole trader or partnership. He will still be subject to UK CGT on disposal of the UK assets of the business.

The usual way round this is for the sole trader to incorporate the business before becoming non-resident and then to sell the shares in the new company after becoming non-resident.

Because the shares in the new company are not assets of a UK branch or agency, they can be disposed of without incurring UK CGT, subject to the usual conditions

As the previous respondents have indicated, this requires careful planning, especially to the extent it relies on Inland Revenue Concessions which may not be available where tax avoidance is a main motive.

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