Temporary Non-residence: Pre-2013 Departures

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Temporary non-residence: Introduction

This chapter discusses the pre-2013 TNR rules, which apply where an individual's year of departure was before 2013/14. For an introduction to the topic, and residence terminology, see Temporary non-residence: Introduction.

Para 158 sch 45 FA 2013 provides:


(1) The existing temporary non-resident provisions, as in force immediately before the day on which this Act is passed, continue to have effect on and after that day in any case where the year of departure (as defined in Part 4 of this Schedule) is a tax year before the tax year 2013-14...
(3) The existing temporary non-resident provisions are—
(a) section 10A of TCGA 1992 (chargeable gains),
(b) section 576A of ITEPA 2003 (income withdrawals under certain foreign pensions),
(c) section 579CA of that Act (Income withdrawals under registered pension schemes), and
(d) section 832A of ITTOIA (relevant foreign income charged on remittance basis).


Residence in years before 2013/14

A person whose year of departure is 2013/14 or later, and so who falls within the rules discussed in this chapter, may still need to look at some pre 2013/14 years in order to apply the 4/7 years part of the test. Para 158 sch 45 FA 2013 provides:


(2) Where those provisions continue to have effect by virtue of sub-paragraph (1)—
(a) the question of whether a person is or is not resident in the UK for the tax year 2013-14 or a subsequent tax year is to be determined for the purposes of those provisions in accordance with Part 1 of this Schedule, but
(b) the effect of Part 3 is to be ignored.


This is the same as the post-2013 TNR rule: see 9.6 (Transitional rule: residence in years before 2013/14) Transitional rule: residence in years before 2013/14.

Temporary non-resident conditions

Section 10A TCGA sets out four conditions which must all be satisfied if the section is to take effect. I refer to these as the "TNR conditions". Section 10A(1) TCGA provides:


This section applies in the case of any individual ("the taxpayer") if—
(a) he satisfies the residence requirements for any year of assessment ("the year of return");
(b) [i] he did not satisfy those requirements for one or more years of assessment immediately preceding the year of return but
[ii] there are years of assessment before that year for which he did satisfy those requirements;[1]
(c) there are fewer than five years of assessment falling between the year of departure and the year of return; and
(d) four out of the seven years of assessment immediately preceding the year of departure are also years of assessment for each of which he satisfied those requirements.


Section 832A(1) ITTOIA is the same for IT.[2]

The legislation uses three defined terms with commonsense definitions:

(1) Year of departure.[3]

(2) Intervening year.[4]

(3) Year of return.[5]


"Residence requirements"

"Residence requirements" is defined in s.10A(9) TCGA:


For the purposes of this section an individual satisfies the residence requirements for a year of assessment—
(a) if, during any part of that year of assessment, he is resident in the UK and not Treaty non-resident, or
(b) if he is ordinarily resident in the UK during that year of assessment, unless he is Treaty non-resident during that year of assessment.


Section 832A(4) ITTOIA is the same for IT.[6]

One has to read s.10A(9) more than once, to assimilate the double negatives (s.832A(4) is better drafted), but the matter can be set out in a table:

Resident Ord Resident Treaty non-res. Resident Reqs met
Y Non relevant N Y
Y Non relevant Y N
Not relevant Y N Y
Not relevant Y Y N
N N Not relevant N


Section 10A(9)(b) only applies to the theoretical case of a person who is non-resident but ordinarily resident.


"Treaty non-resident"

"Treaty non-resident" is defined for CGT in s.288(7B) TCGA:


For the purposes of this Act, a person is Treaty non-resident at any time if, at that time, he falls to be regarded as resident in a territory outside the UK for the purposes of double taxation relief arrangements having effect at that time.


Section 832A(5) is the same for IT.[7]

The key term is "double taxation relief arrangements" (here called "DTR arrangements").


"DTR arrangements": IT

Section 832A(6) ITTOIA defines DTR arrangements for the purposes of the IT provision:


In subsection (5) "double taxation relief arrangements" means arrangements which have effect under section 2(1) of TIOPA 2010.


"DTR arrangements": CGT

Section 288(1) TCGA defines DTR arrangements for the purpose of CGT:


"double taxation relief arrangements"—
(a) in relation to a company[8] means arrangements that have effect under section 2(1) of TIOPA 2010 except so far as they have effect in relation to petroleum revenue tax, and
(b) in relation to any other person means arrangements that have effect under section 2(1) of TIOPA 2010 but only so far as they have effect in relation to capital gains tax;


This is different from the IT definition because the treaty needs to contain a CGT provision. For instance, the Jersey DTA counts as "DTR arrangements" for IT but not for CGT because it applies for IT but not for CGT.

Gains and losses accruing in intervening years

Section 10A(2) TCGA sets out the consequence if the TNR conditions are met:


Subject to the following provisions of this section and section 86A, the taxpayer shall be chargeable to CGT as if—
(a) all the chargeable gains and losses which (apart from this subsection) would have accrued to him in an intervening year,
(b) all the chargeable gains which under section 13 or 86 would be treated as having accrued to him in an intervening year if he had been resident in the UK throughout that intervening year ...[9]
were gains or, as the case may be, losses accruing to the taxpayer in the year of return.


Para (a) works because gains accruing on disposals of assets by individuals are in principle chargeable gains even if the individual is non-resident. This needs to be supplemented by para (b) because s.13 gains and s.86 gains do not accrue to participators or settlors who are non-resident.

Section 10A(2) is a deeming provision. Gains which actually accrued in an intervening year are deemed to have accrued in the year of return. I refer to this as "the s.10A(2) fiction". Applying the s.10A(2) fiction the intervening year gains are in principle taxable in the year of return.

Losses can be carried back, ie losses accruing in a later intervening year can be set against gains accruing in an earlier intervening year.


Interaction with remittance basis

For a remittance basis taxpayer there could be a conflict between two deeming rules:

(1) Section 12 TCGA (the CGT remittance basis) provides that gains are treated as accruing when remitted.

(2) The s.10A(2) fiction which provides that gains are treated as accruing in the year of return.

Section 10A(9ZA) TCGA provides:


If—
(a) section 809B, 809D or 809E of ITA 2007 (remittance basis) applies to the taxpayer for the year of return, and
(b) the taxpayer is not domiciled in the UK in that year,
any foreign chargeable gains[10] falling within subsection (2)(a) which were remitted in an intervening year are treated as remitted in the year of return.


"Subs.(2)(a) gains"

Section 10A(9ZA) only applies to gains "falling within subsection (2)(a)" that is:


chargeable gains ... which (apart from subsection 2(a)) would have accrued to him in an intervening year,


That is, gains accruing in an intervening year and remitted in an intervening year: they are treated as accruing in the year of return, not when remitted. I refer to those as "subsection (2)(a) gains". It is an interesting question how to treat gains accruing in an intervening year and not remitted until after the year of return.

I had previously considered that s.10A(9ZA) applied to pre-departure gains (foreign gains accruing while the individual was UK resident, ie gains before departure) which were remitted during an intervening year. However on reflection that does not appear to be the case because these are not subsection 2(a) gains.


Treaty users

Section 10A(9B) TCGA provides:


Where this section applies in the case of any individual in circumstances in which one or more intervening years would, but for his being Treaty non-resident during some or all of that year or those years, not be an intervening year, ...


That is a case of an individual who is UK-law UK resident but treaty non-resident ("treaty-users").[11] The position of treaty users is different from individuals who are UK-law non-UK resident, since treaty-users are subject to CGT unless treaty relief applies.

Where no CGT treaty relief applies, there is no need for the TNR provisions, and the TNR rules should simply have been disapplied. Instead the rules are disapplied in part, in a complex manner, and the problems have not been fully thought through.

Section 10A(9B) makes four modifications to s.10A:


this section shall have effect in the taxpayer's case—
(a) as if subsection (2)(a) above did not apply in the case of any amount treated by virtue of section 87 or 89(2) as an amount of chargeable gains accruing to the taxpayer in any such intervening year,


Section 10A(9B)(a) disapplies the TNR rules for s.87 gains: such gains accrue in the year that the s.87 code provides (under the s.87 matching rules and s.87 remittance basis) and not in the year of return. This is sensible on the view (taken in this book) that such gains do not qualify for DT exemption.

Secondly:


this section shall have effect in the taxpayer's case ...
(b) as if any such intervening year were not an intervening year for the purposes of subsections (2)(b) and (c) and (6) above.


There are three amendments here. They are best considered separately.

To follow the first we need to refer back to s.10A(2)(b):


Subject to the following provisions of this section and section 86A, the taxpayer shall be chargeable to CGT as if—
(b) all the chargeable gains which under section 13 or 86 would be treated as having accrued to him in an intervening year if he had been resident in the UK throughout that intervening year ...
were gains ...accruing to the taxpayer in the year of return.


Section 10A(9B)(b) disapplies the TNR rules for s.13 gains: such gains accrue in the year that the s.13 code provides (the year of accrual, subject to the s.13 remittance basis) and not in the year of return. Similarly, the subsection disapplies the TNR rules for s.86 deemed gains: such gains accrue in the year that s.86 provides (the year of accrual) and not in the year of return. This would be sensible on the view that s.13 gains and s.86 deemed gains do not qualify for DT exemption but in some cases they do.

The other amendments made by s.10A(9B)(b) concern s.10A(2)(c) and s.10A(6): these are consequential amendments relating to losses.[12]

What about gains of an individual who is UK-law UK resident, treaty non-resident, but which do not qualify for treaty relief (eg gains on a disposal of UK land)? They fall within the TNR rules, so the gain accrues in the year of disposal (and tax is paid) but it accrues instead in the year of return (and the former computation is revised, and tax paid or repaid accordingly).


Pre-departure income

The drafting of s.832A was based on the existing s.10A which was designed for a different situation, resulting in anomalies.

The reader may wonder if the following planning was possible: suppose an individual remained UK-law UK resident but became treaty-resident in a state with a DTA conferring the necessary relief (ie "treaty non-resident"); the individual remitted the pre-departure income/gains while treaty non-resident. However treaties do not provide relief in this situation so planning of this kind was not possible. Nevertheless s.832A does apply in this case. The drafter may perhaps have thought that this planning was possible, or they may have introduced the rule unintentionally by copying across in s.832A the s.10A(2) rules which were designed for a different situation.

Section 832A(3) ITTOIA provides:


Relevant foreign income is within this subsection if—
(a) it is for the year of departure or any earlier tax year,[13] and
(b) section 832 applies to it.:


In the following discussion I refer to such income as "pre-departure income"; in other words, that means RFI which:

(1) is taxed on a remittance basis, ie accruing to a remittance basis taxpayer while the individual was UK resident; and

(2) which was not remitted prior to departure (so was not subject to tax before departure).

Section 832A(2) ITTOIA sets out the taxation of pre-departure income if the TNR conditions are met:


Treat any of the individual's relevant foreign income within subsection (3) which is remitted to the UK after the year of departure and before the year of return as remitted to the UK in the year of return.


Pre-departure income which is remitted during an intervening year is treated as remitted in the year of return. This makes sense for an individual who is UK-law non-UK resident during the intervening year. It makes no sense for someone who is UK-law UK resident but treaty non-resident, unless one takes the view that treaty relief is available on remitted income during the intervening year, which would not seem to be the case.

Income arising after the year of departure is not caught.

The RDR Manual provides a straightforward example. Omitting irrelevant detail (and rewriting slightly to enhance clarity) this provides:[14]


T is UK resident in 2007-08 and 2008-09 and a remittance basis taxpayer in both years.
T is non-resident in 2009-10 and 2010-11.
T is UK resident again in 2011-12 and the temporary non residence conditions of s.832A ITTOIA are satisfied.
He had £6,000 of unremitted relevant foreign income from 2007-08, and £8,000 of relevant foreign income from 2008-09.
In 2009-10 and 2010-11 he remits all of this relevant foreign income to the UK.
T will be taxed on £14,000 in 2011-12 (the 'year of return') in respect of his remittances of his relevant foreign income in the years of 'temporary non-residence'.


2008 transitional rules

Para 83(4) Sch 7 FA 2008 provides:


Nothing in section 832A of that Act applies in relation to anything remitted to the UK in the tax year 2007-08 or any earlier tax year.


Thus pre-2008 income is caught by the new rule if remitted after 2008/09. This retrospective rule is intentional. The RDR Manual provides a straightforward example of a case where transitional relief is available. Omitting irrelevant detail (and slightly rewriting for enhanced clarity) this provides:[15]


J is non-resident in 2007-08 but meets the temporary non-residence conditions of s.832A when he returns to the UK in 2008-09.
He has unremitted relevant foreign income from 2006-07, a year in which he was resident and had claimed the remittance basis.
In 2007-08 he remits this relevant foreign income to the UK.
This transitional provision means that J will not be taxed in 2008-09 (the "year of return") in respect of this remittance of the RFI from 2006-07, although all of the 'temporary non-resident' conditions at s.832A ITTOIA are otherwise met.

Interaction with double taxation relief

DT exemption

Section 10A(9C) TCGA provides:


Nothing in any double taxation relief arrangements shall be read as preventing the taxpayer from being chargeable to capital gains tax in respect of any of the chargeable gains treated by virtue of subsection (2)(a) above as accruing to the taxpayer in the year of return (or as preventing a charge to that tax from arising as a result).


The wording is the same in the post-2013 TNR rules: for a discussion see 9.7 (Interaction with DTAs).


Foreign tax credit relief

EN FB 2005 provides:


The application of section 10A in relation to an individual does not prevent the individual obtaining relief for foreign tax paid in respect of chargeable gains which are treated as arising to him or her in the year of return.


Post-departure acquisitions

Section 10A(3) TCGA provides:


Subject to subsection (4) below, the gains and losses which by virtue of subsection (2) above are to be treated as accruing to the taxpayer in the year of return shall not include any gain or loss accruing on the disposal by the taxpayer of any asset if—
(a) that asset was acquired by the taxpayer at a time in the year of departure or any intervening year when—
(i) he was neither resident nor ordinarily resident in the UK, or
(ii) he was resident or ordinarily resident in the UK but was Treaty non-resident; ...


The CG Manual provides:


26230. Temporary non-residence: Gains or losses excluded from scope of s.10A [October 2013]
An individual may acquire assets after leaving the UK in a period of temporary residence abroad. If such assets are disposed of during the period of temporary non-residence, during an intervening year (see CG26155) any gains or losses on such assets are, in general, excluded from the scope of Section 10A, but see CG26240 which tells you about the exceptions to this general rule.
TCGA92/S10A(3)(a)
Section 10A(3)(a) provides that a gain or loss on an asset that was acquired after departure from the UK in either the tax year of departure or any of the intervening tax years when the taxpayer was not resident or not ordinarily resident* shall not be treated as chargeable in the tax year of return.
If the asset was acquired at a time when the taxpayer was resident or ordinarily resident* in the UK but was Treaty non-resident, any gain on that asset may fall within the scope of S10A. (This is only likely to apply to acquisitions after the date of departure up to the next 5 April).
You should note that the general exclusion of gains on assets acquired and disposed of during temporary non residence applies only to gains and losses which would otherwise be chargeable or allowable by virtue of TCGA92/S10A. Such gains or losses can only accrue in an intervening year.
Where assets are acquired after the date of departure and disposed of in the year of departure or year of return while the individual is not resident and not ordinarily resident the gains will be chargeable under TCGA92/S2 unless the concessionary treatment under ESCD2 is available to the individual, see CG26300+.
  • For 2013-14 and later years ordinary residence does not need to be considered.
Example 1 (Mr Smith)
S who has lived all his life in the UK, leaves the UK on 10 July 2008 for a four year contract of employment abroad.
He resumes tax residence in the UK on 15 August 2012.
On 8 May 2009 S buys 20,000 shares in a UK Company. He sells all of the shares on 10 January 2011, realising a gain of £12,000.
S fulfils all of the conditions for Section 10A to apply, see CG26156, but because the shares were acquired after his departure from the UK the gain is not treated as chargeable in the year of return.
There may be occasions when shares are acquired overseas and they must be added to a pool of existing shares. Detailed guidance on share pooling can be found in Appendix 10.
A pool of shares may contain shares whose disposal would otherwise fall outside of the scope of Section 10A. There is no statutory rule for identifying which shares have been disposed of for the purposes of section 10A, so the allocation shown in the return should be accepted provided adequate records are kept by the taxpayer so that the identification of later disposals is consistent with what has gone before.
Whilst the taxpayer can decide which shares may have been disposed of, the shares are still subject to the normal pooling rules with the gain on the shares disposed of that would be outside of the scope of s10A being determined on a proportionate basis. In particular, the makeup of the pool isn't altered to allow the shares to be identified to specific costs.
Example 2
A taxpayer owns 200 shares.
Year 1 - He leaves the UK.
Year 2 - Whilst abroad he acquires 200 shares.
Year 3 - Whilst abroad he sells 100 shares.
Year 4 - He returns to the UK and later in the year purchases a further 100 shares.
Year 5 - He goes abroad again and sells 200 shares.
Year 6 - He finally returns to the UK where he remains.
When looking at the section 104 pool, on the first disposal in year 3 he has sold 100 of the 400 held at that time and on the disposal in year 5 he has sold 200 of the 400 held at that time. The computations of any gain or loss arising would be made in the normal way.
The taxpayer could decide that the sale in year 3 should be regarded as the disposal of 100 of the shares that were acquired when overseas in year 2. This would mean that any gain would not be caught by section 10A. If this was done, on the second sale in year 5 only 100 of the 200 shares could then be regarded as having been acquired while overseas so half of the gain from year 5 would be caught by section 10A and would be charged in year 6.


Exceptions to relief

The CG Manual provides:


26240 Temporary non-residence: Exceptions to the exclusion from section 10A [April 2010]
Sometimes the exclusion from the scope of s.10A TCGA 1992 afforded to gains accruing during intervening years on assets acquired after departure from the UK is not appropriate. Some assets acquired by an individual after departure in either the tax year of departure or any of the intervening tax years when the taxpayer was not resident or not ordinarily resident have a connection with the earlier period of residence. These exceptional assets fall under three headings (see below). Where they apply, any gains or losses on the disposal of the assets during intervening years are treated as chargeable in the tax year of return, that is to say they are within the scope of section 10A.


There are three categories of exceptions. Section 10A(3)(b) TCGA requires:


(b) that asset was so acquired otherwise than by means of a relevant disposal which by virtue of section 58, 73 or 258(4) is treated as having been a disposal on which neither a gain nor a loss accrued;


The sections referred to are:

Section 58 TCGA (transfers between husband and wife or between civil partners),
Section 73 TCGA (death of life tenant),
Section 258(4) TCGA (works of art).

Section 10A(3)(c) TCGA requires:


(c) that asset is not an interest created by or arising under a settlement;


This prevents an avoidance scheme under which T might acquire an interest under a settlement with relevant income or trust gains, and then sell the interest tax free.

Lastly, s.10A(3)(d) requires:


(d) the amount or value of the consideration for the acquisition of that asset by the taxpayer does not fall, by reference to any relevant disposal, to be treated as reduced under section 23(4)(b) or (5)(b), 152(1)(b), 153(1)(b), 162(3)(b) or 247(2)(b) or (3)(b).


The sections referred to are:

Section 23(4)(b) and (5)(b) TCGA (compensation and insurance)

Section 152(1)(b) and s.153(1)(b) TCGA (business assets roll-over relief),

Section 162(3)(b) TCGA (transfer of business to a company)

Section 247(2)(b) and (3)(b) TCGA (compulsory acquisition).

The asset must be acquired "by the taxpayer". The CG Manual provides:


26231. Assets acquired by an offshore trust [October 2013]
The exclusion from charge, see CG26230, for assets acquired after the taxpayer's departure does not apply to assets acquired within an offshore trust, TCGA 1992, s.86 or TCGA 1992, s.87 or by a non-resident closely controlled company, TCGA 1992, s.13.
26243. Arrival in and departure from UK: temporary non-residence: exceptions to the exclusion from section 10A: example – year of departure 2012-13 or earlier [October 2013]
Example (Mr and Mrs Brown)
Mr and Mrs B, who have lived in the UK all of their lives, leave the UK on 15 November 2009 for Mr B to take up a three year contract of employment abroad.
They resume tax residence in the UK on 1 December 2012.
Mr B had acquired a property in the UK on 4 March 2002. On 12 June 2010, he gave the property to Mrs B. Mrs B sold the property on 10 March 2011 realising a gain of £100,000.
TCGA92/S58 applies to the gift by Mr B, so that for Capital Gains Tax purposes at the time of transfer neither gain nor loss arises. On the sale by Mrs B, the gain is treated as accruing in the year of return as she fulfils all of the conditions for TCGA92/S10A to apply, and the asset is not excluded from the scope of TCGA92/S10A (subsection (3)(b)).


Section 10A(4) TCGA provides:


Where—
(a) any chargeable gain that has accrued or would have accrued on the disposal of any asset ("the first asset") is a gain falling (apart from this section) to be treated by virtue of section 116(10) or (11), 134 or 154(2) or (4) as accruing on the disposal of the whole or any part of another asset, and
(b) the other asset is an asset falling within paras (a) to (d) of subsection (3) above but the first asset is not,
subsection (3) above shall not exclude that gain from the gains which by virtue of subsection (2) above are to be treated as accruing to the taxpayer in the year of return.


The CG Manual provides:


26250 Arrival in and departure from UK: temporary non-residence: held-over gains - year of departure 2012-13 or earlier [October 2013]
Sometimes a gain on disposal of an asset (the first asset) is 'held over' and not charged until another asset is disposed of. Where this happens under one of the provisions listed below then the gains which eventually accrue when the other asset is disposed of are not excluded from the scope of s.10A TCGA 1992 by subsection (3) of that section, where subsection (3) would otherwise apply because the other asset was within its scope (see CG26230 and CG26240). Note that for subsection (3) to be disapplied in this way, the first asset must not be within its scope.
Where s.10A(4) TCGA 1992 applies, a held-over gain which accrues on a disposal in an intervening year when a taxpayer is not UK resident will be treated as accruing in the year of return to the UK, even if the asset which is disposed of was acquired after the taxpayer became non-resident, see CG26111.
The Capital Gains Tax 'hold-over' provisions to which this subsection refers are:
• s.116(10) TCGA 1992 or s.116(11) TCGA 1992 (where the new asset is a qualifying corporate bond), see CG53845+.
• s.134 TCGA 1992 (compensation stock), see CG55045+.
• s.154(2) TCGA 1992 or (4) (depreciating assets), see CG60370+.
Example (Mr Priestley)
Mr P goes to live in France for political reasons. As a result, he is not resident in the UK for the next three full years of assessment. During the first of those years he sells his shares in P Chemicals Ltd and receives qualifying corporate bonds issued by the purchaser, Davy Plc. In the following year he redeems the qualifying corporate bonds and receives cash.
Although he has actually disposed of his shares, s.116(10) TCGA 1992 applies and so he is treated for the purposes of TCGA 1992 as if he had not done so. Instead, a gain is computed as if he had disposed of the shares and that gain is 'held over' or 'frozen' until he disposes of the qualifying corporate bonds. Without the special provision at s.10A(4) TCGA 1992 the gain which accrued when the qualifying corporate bonds were disposed of would not be within the scope of section 10A because they are assets both acquired and disposed of whilst Mr P was not UK resident. Note that the first asset, the shares, is not within the scope of subsection (3) because it was acquired before Mr P left the UK: it is appropriate to bring the gain latent in those shares within the potential scope of s.10A even though the gain did not arise until some other asset was disposed of.


Section 10A and non-resident trusts/companies

Losses of non-resident company within s.13 TCGA

Section 10A provides:


(2) Subject to the following provisions of this section and section 86A, the taxpayer shall be chargeable to CGT as if— ...
(c) any losses which by virtue of section 13(8) would have been allowable in his case in any intervening year if he had been resident in the UK throughout that intervening year,
were ... losses accruing to the taxpayer in the year of return. ...
(6) The reference in subsection (2)(c) above to losses allowable in an individual's case in an intervening year is a reference to only so much of the aggregate of the losses that would have been available in accordance with subsection (8) of section 13 for reducing gains accruing by virtue of that section to that individual in that year as does not exceed the amount of the gains that would have accrued to him in that year if it had been a year throughout which he was resident in the UK.


The CG Manual explains:


26201 Losses attributed to participators in non-resident companies [October 2013]
Losses on the disposal of an asset by a non-resident company are only attributed to a participator under s.13 TCGA 1992 in certain circumstances, s.13(8) TCGA 1992. A loss is attributed only if it will be set off against a gain attributed to the same person from the same company in the same year of assessment or against a gain made by another non-resident company which has been attributed to the taxpayer in the same year of assessment, see CG57250+, in particular, CG57295-CG57299.
Section 10A TCGA 1992 can apply to losses which are attributed to a UK resident participator under s.13 just as it applies to attributed gains, so that the losses are treated as accruing in the year the individual returns to the UK. However, the restriction to the attribution contained in s.13(8) TCGA 1992 has a parallel at s.10A(6) TCGA 1992, which restricts the amount of losses within the scope of s.10A to the amount which would be available under s.13, subsection (8) to set against attributed gains. Losses of a year in excess of the gains attributed in that year are not within the scope of section 10A.
26203. Temporary non-residence [April 2010]
Example (Mrs Adams)[16]


The CG Manual provides an example where the facts (stripping out irrelevancies) are as follows:


A is non-UK resident in 1999/00 - 2001/02 inclusive.
A has owned all of the shares in a non-resident company. During A's period of non-residence gains and losses accrue to the company as follows:
1999/00 gain £20,000; loss £5,000
2000/01 loss £10,000
2001/02 gain £20,000
The TNR conditions apply to A. Under Section 10A(2)(b) all the gains which would have been treated as accruing to A in the intervening years if she had been resident in those years are treated as accruing to her in the year of return. Losses are allowable to be set against gains of the same year of actual accrual.
A is therefore chargeable in the year of return, 2002-2003 as follows
• net gains of £15,000 (gain £20,000 less loss £5000) for 1999-2000
• a gain of £20,000 for 2001-2002.
The total gains chargeable are therefore £35,000.
The loss arising in 2000-2001 is not allowable.


Temporarily non-resident beneficiaries: s.87 charge

Section 10A TCGA does not mention s.87 TCGA. So at first sight it might seem that s.87 gains are not caught; but this is not the case. Section 10A(2)(a) TCGA applies to gains accruing to the individual on actual disposals. If a non-resident individual disposes of assets, chargeable gains do accrue to then (even though under s.2 TCGA they are outside the charge to CGT). Subsection (a) likewise applies if an individual receives a capital payment, as trust gains are treated as accruing to the beneficiary under s.87, even if they are non-resident. However, subsection (a) would not catch s.86 or s.13 gains, as gains under these sections do not accrue to a non-resident. The sections only apply to a UK resident settlor or participator. Hence the drafter correctly extends s.10A(2) by subsection (b), which applies ss.13 and 86 by deeming the taxpayer to be UK resident. It was not necessary to do this for s.87.

For the interaction with sch 4C TCGA, see 53.25.2 (Trust within s.87) Trust within s.87.

Temporarily non-resident settlor: s.86 charge

CG Manual provides:


26220 – Attribution of gains to settlor [February 2014]
TCGA92/S86 provides that in certain cases a UK resident settlor of a non-resident settlement is assessed on the chargeable gains of the trustees, see CG38200+. Following the enactment of TCGA92/S10A a settlor who is temporarily resident outside the UK may also be assessed under Section 86 on gains realised by the trustees during his/her period of non-residence.
However, all or part of the gains realised by the trustees during the settlor's period of temporary non-residence may already have been charged, under TCGA92/S87, to beneficiaries of the settlement who have received capital payments, see CG38210. TCGA92/S86A provides relief in this situation by excluding the gains charged to beneficiaries under Section 87 from the extended charge on the settlor under Section 86.
Any case involving Section 86 or Section 86A is to be reported to Specialist PT Trusts and Estates in accordance with CG38200.


The last sentence tacitly acknowledges that s.86A is a difficult section. The amendments in 2008 have created a fine mess. I do not attempt to consider the transitional rules.

Section 86A(1) TCGA provides:


(1) Subsection (2) below applies in the case of a person who is a settlor in relation to any settlement ("the relevant settlement") where—
(a) by virtue of section 10A, amounts falling within section 86(1)(e) for any intervening year or years would (apart from this section) be treated as accruing to the settlor in the year of return; and
(b) there is an excess of the relevant chargeable amounts for the non-residence period over the amount of the section 87 pool at the end of the year of departure.


"Relevant chargeable amounts" is defined in s.86A(3) TCGA:


In subsection (1) above, the reference to the relevant chargeable amounts for the non-residence period is (subject to subsection (5) below) a reference to the aggregate of the amounts on which beneficiaries of the relevant settlement are charged to tax under section 87 or 89(2) for the intervening year or years in respect of any capital payments received by them.


"Section 87 pool" is defined in s.86A(4) TCGA:


In subsection (1) above, the reference to the section 87 pool at the end of the year of departure is (subject to subsection (5) below) a reference to the amount (if any) which, in accordance with subsection (2) of that section, fell in relation to the relevant settlement to be carried forward from the year of departure to be included in the amount of the trust gains for the year of assessment immediately following the year of departure.


The definition of "s.87 pool" refers back to s.87(2) TCGA. That worked by reference to the original s.87(2) TCGA. Unfortunately s.87 was redrafted in 2008 and by reference to the current s.87(2) the italicised words make no sense. This can be seen by comparing the two provisions:

Original s.87(2): Current s.87(2):
(2) There shall be computed in respect of every year of assessment for which this section applies the amount on which the trustees would have been chargeable to tax under section 2(2) if they had been resident and ordinarily resident in the UK in the year; and that amount, together with the corresponding amount in respect of any earlier such year so far as not already treated under subsection (4) below or section 89(2) as chargeable gains accruing to beneficiaries under the settlement, is in this section and sections 89 and 90 referred to as the trust gains for the year. (2) Chargeable gains are treated as accruing in the relevant tax year to a beneficiary of the settlement who has received a capital payment from the trustees in the relevant tax year or any earlier tax year if all or part of the capital payment is matched (under section 87A as it applies for the relevant tax year) with the section 2(2) amount for the relevant tax year or any earlier tax year.


The drafter in 2008 failed to notice that consequential amendments were needed here. Taken literally, therefore, the definition of "section 87 pool" is nonsense and the amount of the s.87 pool should be zero. If one could adopt a position of sufficient indifference to statutory words, one might rewrite the section to say what parliament would presumably have said, had the point been noticed, in which case the "section 87 pool" means s.2(2) amounts; though this really amounts to legislation and not construction.

Section 86A(5) deals with settlements with more than one settlor.[17]

Section 86A(6)(7) was intended to deal with the computation of trust gains, now s.2(2) amounts:


Where any reduction falls to be made by virtue of subsection (2) above in any amount to be attributed in accordance with section 10A to any settlor for any year of assessment, the reduction to be treated as made for that year <i>in accordance with section 87(3) in the case of the settlement in question shall not be made until—
(a) the reduction (if any) falling to be made by virtue of that subsection has been made in the case of every settlor to whom any amount is so attributed; and
(b) effect has been given to any reduction required to be made under subsection (7) below.


This provision refers to s.87(3) TCGA. That worked by reference to the original s.87(3) TCGA. Unfortunately s.87 was redrafted in 2008 and by reference to the current s.87(3) the italicised words again make no sense. The same problem affects s.86A(7)(8):


Where in the case of any settlement there is (after the making of any reduction or reductions in accordance with subsection (2) above) any amount or amounts falling in accordance with section 10A to be attributed for any year of assessment to settlors of the settlement, the amount (or aggregate amount) falling in accordance with that section to be so attributed shall be applied in reducing the amount carried forward to that year in accordance with section 87(2).
(8) Where an amount has been applied, in accordance with subsection (7)) above, in reducing the amount which in the case of any settlement is carried forward to any year in accordance with section 87(2), that amount (or, as the case may be, so much of it as does not exceed the amount which it is applied in reducing) shall be deducted from the amount used for that year for making the reduction under section 87(3) in the case of that settlement.


Lastly, for completeness, s.86A(9) provides some referential definitions.[18]

For the interaction with sch 4B TCGA, see 53.25.1 (Trust within s.86 TCGA) Trust within s.86 TCGA.

Time limit for assessment

Section 10A(7) TCGA provides:


Where this section applies in the case of any individual, nothing in any enactment imposing any limit on the time within which an assessment to capital gains tax may be made shall prevent any such assessment for the year of departure from being made in the taxpayer's case at any time before the end of two years after the 31st January next following the year of return.


The CG Manual provides:


26270. Assessment time limits [October 2013]
The normal assessment time limits apply where gains accruing in the intervening years are treated by virtue of TCGA92/S10A as assessable in the tax year of return to UK residence.
Where, however, a gain accrues in the tax year of departure from the UK after the date of the departure, this gain should be assessed by virtue of TCGA92/S2 in the year of departure. ESC D2 will not apply in cases where TCGA92/S10A would apply to any gains accruing in intervening years, see CG26300. In these circumstances, to ensure there is sufficient time in which to assess such a gain, the time limit has been specifically extended where the individual satisfies the conditions of Section 10A TCGA 1992 (whether or not gains accrue which are chargeable under that section). (TCGA92/S10A(7)).
The extended time limit permits gains accruing in the tax year of departure from the UK to be assessed at any time up to two years after 31 January next following the year of return to the UK notwithstanding any other time limit for the making of an assessment.
If the conditions of Section 10A TCGA 1992 are not satisfied then the normal assessment time limits will apply.


Offshore funds

This topic (by an unintended accident of drafting) is dealt with by the post-2013 TNR rules, even if the year of departure was before 2013/14. See 9.22 (TNR: Offshore funds) TNR: Offshore funds.

Footnotes

  1. Limb [ii] appears to be otiose, given para (d); but it does not matter.
  2. Section 832A(1) ITTOIA provides:
    "This section applies if—
    (a) an individual satisfies the residence requirements for any tax year ("the year of return"),
    (b) the individual did not satisfy those requirements for one or more tax years immediately before the year of return but did satisfy those requirements for an earlier tax year,
    (c) there are fewer than 5 tax years between—
    (i) the last tax year before the year of return for which the individual satisfied those requirements ('the year of departure'), and
    (ii) the year of return, and
    (d) the individual satisfied those requirements for at least 4 out of the 7 tax years immediately before the year of departure."
  3. Section 10A(8) TCGA provides:
    "'the year of departure' means the last year of assessment before the year of return for which the taxpayer satisfied the residence requirements."
  4. Section 10A(8) TCGA provides:
    "'intervening year' means any year of assessment which, in a case where the conditions in paras (a) to (d) of subsection (1) above are satisfied, falls between the year of departure and the year of return."
    That is, an intervening year is one in which the temporary non-resident conditions are satisfied.
  5. Defined in s.10A(1)(a) TCGA as the year in which the temporary non-resident again satisfies the residence requirements.
  6. Section 832A(4) ITTOIA provides:
    "For the purposes of subsection (1) an individual 'satisfies the residence requirements' for a tax year if—
    (a) at any time in that year, the individual is UK resident and not Treaty non-resident, or
    (b) the individual is ordinarily UK resident, and is not Treaty non-resident, for that year."
  7. Section 832A(5) ITTOIA provides:
    "For the purposes of subsection (4) an individual is 'Treaty non-resident' at any time if, at that time, he is regarded as resident in a territory outside the UK for the purposes of double taxation relief arrangements having effect at that time."
  8. Companies are not relevant to this chapter but one needs to read para (a) in order to follow para (b).
  9. S.10A(2)(c) TCGA deals with losses of non-resident companies: see 9A.9.1 (Losses of non-resident company within s.13 TCGA) Losses of non-resident company within s.13 TCGA.
  10. Section 10A(9ZA) adds: "For this purpose 'foreign chargeable gains' has the meaning given by section 12(4)." If there were a TCGA-wide definition this would not be necessary. Suppose (1) an individual has a UK foreign currency account (2) the individual disposes of the account when temporarily resident abroad. The account is non-UK situate for CGT purposes; the gain is a foreign chargeable gain and is charged under the temporary non resident rules when the individual returns to the UK, but qualifies for the remittance basis.
  11. See row 2 of the table in 9A.3 ("Residence requirements").
  12. See 9A.9.1(Losses of non-resident company within s.13 TCGA) Losses of non-resident company within s.13 TCGA.
  13. "Any earlier year" would include a year in which a person was non-resident, but income of such a year is not relevant foreign income: see "Relevant foreign income".
  14. The example including its irrelevant detail in full is as follows:
    32520 Temporary Non Residents: qualifying conditions [June 2010] Example (Travis)
    T, a long-term UK resident has been a remittance basis user since 2000-01. He leaves the UK for a work secondment in January 2009 (2008-09) and is not resident in 2009-10 and 2010-11.
    T returns to the UK in August 2011 and meets the residence requirements in s832A in 2011-12.
    He has £6,000 of relevant foreign income from 2007-08, a year in which he had claimed the remittance basis under ITA07/s831. He also has £8,000 of relevant foreign income from 2008-09, a year in which he claimed the remittance basis under the new rules at ITA07/s809B.
    In 2009-10 and 2010-11 he remits all of this relevant foreign income to the UK to meet certain ongoing UK financial commitments.
    T will be taxed on £14,000 in 2011-12 (the 'year of return') in respect of his remittances of his relevant foreign income in the years of 'temporary non-residence'.
  15. The example including its irrelevant detail in full is as follows:
    31440 Relevant foreign income and the temporary non-residents rule [July 2010]
    Example (Johan)
    J is not-resident in 2007-08 but meets the residence requirements in s832A when he returns to the UK in 2008-09.
    He has £6,000 of relevant foreign income from 2006-07, a year in which he was resident and had claimed the remittance basis under ITA07/s831.
    In 2007-08 he remits all of this relevant foreign income to the UK to meet certain ongoing UK financial commitments.
    This transitional provision means that J will not be taxed in 2008-09 (the 'year of return') in respect of this remittance of the £6,000 relevant foreign income from 2006-07, although all of the 'temporary non-resident' conditions at ITTOIA05/s832A are otherwise met.
  16. The example including all its irrelevant detail in full is as follows:
    26203. – Losses [October 2013]
    Example
    Mrs. Adams, who has lived in the UK all of her life, leaves the UK on 1 September 2008 to take up a four year contract of employment abroad.
    She resumes tax residence in the UK on 31 August 2012.
    Mrs Adams has owned all of the shares in a company resident in Jersey for many years. The company owns a portfolio of shares and a number of properties. During Mrs Adams' period of non-residence the company makes a number of disposals. Gains and losses accrue as follows:
    3 May 2009 gain £20,000 (year of assessment 2009-10)
    23 October 2009 loss £ 5,000 (year of assessment 2009-10)
    14 July 2010 loss £10,000 (year of assessment 2010-11)
    4 September 2011 gain £20,000 (year of assessment 2011-12)
    Mrs Adams fulfils all of the conditions for Section 10A to apply, see CG26156. Under Section 10A(2)(b) all the gains which would have been treated as accruing to Mrs Adams in the intervening years if she had been resident in those years are treated as accruing to her in the year of return. Losses are attributed to her, and section 10A applies to them, to the extent that they may be set against gains attributed in the same year.
    Mrs Adams is therefore chargeable in the year of return, 2012-13 as follows
    • net gains of £15,000 (gain £20,000 less loss £5000) from 2009-10
    • a gain of £20,000 for 2011-12.
    The total gains chargeable are therefore £35,000.
    The loss arising in 2010-2011 is not allowable because no gains from that year were attributed to her.
  17. "Where the property comprised in the relevant settlement has at any time included property not originating from the settlor, only so much (if any) of any capital payment or amount carried forward in accordance with section 87(2) as, on a just and reasonable apportionment, is properly referable to property originating from the settlor shall be taken into account for the purposes of subsections (3) and (4) above."
  18. "Expressions used in this section and section 10A have the same meanings in this section as in that section; and paragraph 8 of Schedule 5 shall apply for the construction of the references in subsection (5) above to property originating from the settlor as it applies for the purposes of that Schedule."