I understand the temporary residence CGT rules under TCGA92 s.10A (pre-Apr 2019 reference). One of its conditions is that it is for 5 years from when the individual loses sole UK residency.
I want to particularly check the interaction point with the double tax treaty under TCGA92 s.10A(5).
HMRC’s guidance reads:
(1) Preference is given to an existing charge or any gain that are charged do not fall withing the scope of s.10A.
(2) where an existing charge is prevented from applying because of the terms of DTA, the gains remain within the scope of TCGA92 S.10A. Any such gain would be treated as falling within the period of return.
What I am not clear or want to ensure that I understand that (2) above is applicable in those 5 years only?.
Also what are they refering to in (1)? examples or further explanation will be helpful.
It deals with the scenario that the individual is not a UK resident at all in those 5 years. Does this include them being UK tax resident under the SRT but treaty non-resident?
I was wondering how we would deal with HS302 form, if the individual pays 0% CGT on disposal in the other country, but to obtain relief under HS302 the credit needs to be at lets say 10% UK CGT rate.
How does annual relief work?
A. It deals with the scenario that the individual is not a UK resident at all in those 5 years. Does this include them being UK tax resident under the SRT but treaty non-resident?
B. I was wondering how we would deal with HS302 form, if the individual pays 0% CGT on disposal in the other country, but to obtain relief under HS302 the credit needs to be at lets say 10% UK CGT rate. How does annual relief work?”
A. Yes, it does.
TCGA 1992 s10A provides for the UK to levy CGT on specified capital gains arising during a period of temporary non-residence. However, under various DTAs to which the UK is a party, the UK is denied the ability to levy CGT where the individual is a resident of the overseas territory (or, if the individual is dually resident, is treaty non-resident).
TCGA 1992 s 10 AA(4) thus provides for a treaty override (during the temporary period of non-residence) ensuring that the UK may levy a CGT charge under s 10AA even if a DTA would otherwise preclude the UK from doing so.
A period of temporary non-residence is a period of less than five successive years where an individual for each tax year is either non-resident or resident but treaty non-resident.
B. Not sure I understand the query. Where the overseas territory has levied its own tax on any gain falling within the temporary period of non-residence such tax is creditable against any UK CGT charge arising in the tax year of return.
Regarding B, this is what I mean:
The CGT will be due in the year of return if that is before the 5 year period.
If the individual was a treaty non-resident in the UK (but resident under the SRT), does this mean that they don’t need to claim dual-taxation credit (in HS302 form) each year? that is if there is an option that they will be taxed if they return within the 5 years.
But what if they don’t return within 5 years.
Also if the CGT in the other country is 0% or is not a taxable gain, how can we claim a credit ‘for tax paid’ annually in HS302 form.
If there is no return within the 5 year period then of course s 10A will not apply. As a consequence, any CGT charge arises in the tax year in which the gain arises as normal.
If there is a return within the 5 year period any CGT charge arises in the tax year of return.
Under either scenario any foreign tax paid on any gains will usually be creditable under a relevant DTA (or unilaterally). The time limit for a claim for DTR is 4 years from end of the tax year in which the foreign tax arose or, if later, the 31 January following the tax year in which then foreign tax is actually paid [TIOPA 2010 ss 18/19].
Thus, there is no need to take any decisions re filing for a credit for any tax year until the overall picture as to the length of absence becomes a bit clearer.
Where no foreign tax liability arises or, if it does, the rate is 0% then no DTR claim can be filed.
Just an observation. Having re-examined s10A it seems clear that if an individual is UK resident under UK law but treaty non-resident for a tax year and there is no DTA. between the two territories or there is a DTA but which doesn’t contain a CGT Article then s10A is not in point (ie not needed) as the individual falls within a CGT charge in any event [TCGA s 10A(5)/TCGA 1992 1M(5)].