Capital gains – A little less satisfaction – Taxation

UK: Capital gains – A little less satisfaction

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There is a lot to do for the UK tax regime (as discussed above regarding QAHCs), but we were recently reminded of one area where the UK leaves a lot to be desired and that is the area of ​​earnings in capital for newly arrived residents.

Unlike some countries, notably Canada and in some circumstances the Netherlands, when a person arrives in the UK (whether a business or an individual) their assets retain all of their costs. original acquisition. There is no “boost” to the current market value. The United Kingdom considers that it has the right to tax the whole of the gains, even if they were made without an economic link with the United Kingdom (i.e. before the person resided in the United Kingdom). -United).

This could be considered acceptable if there were no exit charges on the assets when a person leaves the UK (i.e. you are taxed here on the crystallized gains in the UK. UK, but we have no interest in crystallized earnings outside the UK). However, there are exit fees for corporations and trusts, as well as potential exit fees for temporary non-residents if they give up assets while they are non-residents but return within 5 years of leaving. departure. By the way, we are considering (well, some of us think so!) What we are opposed to, however, is the UK’s attempt to get a windfall by taxing earnings that don’t nothing to do with UK.

Like many aspects of UK capital gains rules, we believe the reason for the lack of an increase is simply the perceived difficulty in valuing assets on the UK arrival date. However, with advancements in technology, such assessments are now easier to obtain (or perform), but with the state of the UK’s finances and the call for taxing capital gains at rates of excess. in addition, there is little or no chance that a chancellor will repair this evil.

Why are we making this point? A client who was not resident in the UK had an asset with a large non-crystallized gain, the asset had to be sold before arriving in the UK with foreign tax paid and the rest being capital, free to use here. However, there was a delay in the transaction and the sale took place after he arrived in the UK. Our client only resided in the UK a few days prior to the assignment, but now the entire gain is subject to UK tax. Fortunately (if that’s the right word) the payout basis applies as the customer is not domiciled and no UK tax is due, provided the product stays outside the UK. While his domicile status has come to save him, he cannot enjoy UK earnings without triggering a tax burden and will have to use other sources of capital to fund his UK lifestyle.

On some level you can tell the moral of the story is not to cut so well, but the sale was supposed to take place months before he arrived and for other reasons UK residency does not. could no longer be “delayed”, but with an extension of the UK’s territorial income tax system to earnings this would not be a problem.

Originally published July 2021

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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