Guidance

HS278 Temporary non-residents and Capital Gains Tax (2023)

Updated 6 April 2024

The following guidance includes calculations.

This helpsheet explains the treatment of gains accruing during a period of temporary non-residence. But it’s only an introduction. If you’re in any doubt about your circumstances, you should ask your tax adviser. We will also be pleased to help you and provide any forms you may need. You can also consult our Capital Gains Tax Manual, which explains the rules in more detail.

This helpsheet will help you fill in the Capital Gains Tax summary pages of your tax return.

There can also be tax payable on certain income accruing during a period of temporary non-residence. This is explained in the section ‘temporary non-residents and income tax’ below.

Liability to Capital Gains Tax and residence in the UK

Individuals are normally charged Capital Gains Tax (CGT) on the gains on disposal of assets if they are resident in the UK. An individual’s residence status is determined by the rules within the Statutory Residence Test (SRT).

The SRT rules also provide that a tax year may be split into a UK part and an overseas part. CGT would normally only apply to gains arising in the UK part of a split year. RDR3 Guidance Note: Statutory Residence Test (SRT) has detailed information about the SRT.

However, an individual who is not resident in the UK may be taxed on gains if they dispose of:

1. Assets which are (or have been) used by a trade they carry on in the UK through a branch or agency (see manual CG25500P for further information).
2. A direct or indirect disposal of an interest in UK land. This includes UK residential property (see Non-resident Capital Gains for land and property in the UK (Self Assessment helpsheet HS307)).

Subject to this, an individual who left the UK to live abroad and ceased to be resident in the UK will not be chargeable on gains made in years of assessment after they left the UK unless their non-residence was temporary and they resume tax residence in the UK within a certain time.

What’s meant by temporary non-residence

This helpsheet gives an overview of the rules for an individual returning to the UK in 2022 to 2023. Generally, the rules will apply where an individual meets the following conditions:

1. They had ‘sole UK residence’ for either the whole or a part of at least 4 out of the 7 tax years preceding the year of departure.
2. They had a ‘residence period’ that was not ‘sole UK residence’ in between 2 periods of ‘sole UK residence’.
3. The total of the ‘residence periods’ that were not ‘sole UK residence’ did not exceed 5 years in length.

For these rules, the temporary period of non-residence may start or end within a tax year due to the ‘split year’ treatment (see section 5 of manual RDR3).

Important concepts within these rules are those of ‘sole UK residence’ and ‘residence period’. These are explained in section 6 of manual RDR3.

So, an individual who ceased to be UK resident in 2016 to 2017 or earlier and does not become UK resident again until 2022 to 2023 will not be within the scope of the rules. If you were away from the UK for a shorter period, you may need to consider the detailed rules. Further discussion of these is available in the Capital Gains Tax Manual (see CG26500) and section 6 of manual RDR3.

Temporary non-residence and CGT

If an individual whose year of return to the UK is 2022 to 2023 meets the conditions for temporary non-residence outlined above, then certain gains and losses arising during their period of temporary non-residence are treated as arising in 2022 to 2023. Such gains will therefore be taxed, with losses also becoming allowable, in 2022 to 2023.

Example 1

Mr Smith, who has lived all his life in the UK, left the UK on 25 March 2018 for a contract of employment abroad. He returned to the UK and resumed residence in the UK on 2 February 2023.

He realised a chargeable gain (on an asset acquired before he left the UK) of £35,000 on 15 September 2018. Mr Smith fulfils all of the residence conditions in section 10A TCGA 1992:

• he has resumed UK residence in 2022 to 2023 (the year of return)
• there’s a period not exceeding 5 years immediately before non-sole UK residence where he was not resident in the UK.
• he had sole UK residence for at least 4 out of the 7 tax years immediately prior to his year of departure (in this example, in fact, all 7)

Mr Smith will be chargeable on this gain in the tax year of return to sole UK residence (2022 to 2023) on the gain of £35,000.

If the individual is non-domiciled and claims the remittance basis in 2022 to 2023, then any foreign chargeable gains accruing and remitted to the UK during the period of temporary non-residence become chargeable in the year of return.

Treaty non-residence

Other countries may have different financial years and residency rules, so an individual may be resident in the UK under its domestic law as well as resident in another country under its law. Where an individual is a resident of both countries, the Double Taxation Agreement (DTA) between the countries will provide tie-breaker rules to enable residence for the purposes of the agreement to be determined.

Whole tax years, or UK parts of split years, where an individual is regarded as non-UK resident in accordance with a double taxation treaty, form part of the period of non-UK residence for the rules determining whether an individual was temporarily non-resident (see manual CG26680 and, for examples, manual CG26690).

What gains and losses are included

Some gains and losses arising during periods of temporary non-residence are not within the scope of these rules. An individual may acquire assets after leaving the UK for a period of temporary residence abroad. If such assets are disposed of in that period, any gains or losses on such assets are not normally treated as arising when UK residence is resumed.

Example 2

Continuing with Mr Smith from example 1, on 6 June 2018 Mr Smith bought 20,000 shares in a UK company. He sold all of the shares the following on 15 March, realising a gain of £12,000. Mr Smith is within the temporary non-residence rules, but because the shares were acquired after his departure from the UK the gain is not treated as arising in the year of return.

While gains and losses on assets acquired after leaving the UK are in general excluded from the scope of the temporary non-residence rules, there are some important exceptions to this exclusion. Some assets acquired after the period of non-sole UK residence begins, have a connection with the earlier period of sole UK residence. Gains accruing on the disposal of such assets during a period of temporary non-residence are not excluded, they would be chargeable in the tax year of return.

These exceptions fit into 3 categories:

• assets acquired from another person who themselves acquired them under no gain or no loss rules (see manual CG26610)
• assets which have had their acquisition cost reduced by a rollover relief given on the disposal of another asset which had been acquired by the individual (see manual CG26630)
• gains or losses which represent those on an asset held before the individual left the UK that were deferred until another asset was disposed of — when that other asset is disposed of, crystallizing the gain during the period of temporary non-residence, it will be chargeable in the period of return (see manual CG26630)

Gains of non-resident companies and settlements

Gains accruing to a company or a settlement during the period of non-residence may also need to be considered when UK residence is resumed. These are:

• gains accruing to a closely controlled non-resident company, attributed to UK resident participators in proportion to the extent of their participation (see manual CG57200P)
• gains accruing to settlor-interested non-resident settlements that are attributed to a UK resident and domiciled settlor (see manual CG38430P and HS299) — the amount charged on the temporarily non-resident settlor may be reduced if gains have also been charged on UK resident beneficiaries (see manual CG26590)
• capital payments matched to the gains of non-resident trustees (see manual CG38570C and manual HS301)

Where such gains arose in the temporary period of non-residence and would have been chargeable on the individual had they been UK resident, they are treated as accruing in the period of return. Where the remittance basis may be relevant, see manual CG26650 onwards.

Double Taxation Relief

In some cases, the temporary non-residence rules may mean that a gain is taxed in another country in the year that it arises and then in the UK for the year of return. If tax has been paid on the gain in another country, you may be able to claim relief for double taxation.

HS263 Relief for Foreign Tax Paid explains this further and provides details on how to claim.

Temporary non-residents and Income Tax

Certain types of income received during the period of temporary non-residence will also be treated as arising in the year of return, therefore being taxable in 2022 to 2023.

These are:

• withdrawals from a flexible drawdown pension fund (see manual EIM74050)
• certain lump sums paid under an employer-financed retirement benefit scheme (see EIM15010)
• lump sum payments comprising a ‘relevant step’ for remittance basis users, the remittance of such an amount
• certain lump sums paid by UK pension schemes in respect of which a charge on receipt is removed by a double taxation agreement (see manual EIM74060)
• certain taxable property deemed income and gains of a pension scheme charged to tax on a scheme member (see manual PTM125000)
• relevant foreign income that is chargeable on the remittance basis of assessment and is remitted to the UK in the period of temporary non-residence — such relevant foreign income is treated as remitted to the UK in the period of return (see manual RDRM31140)
• distributions paid by close companies (or those that would be close, if they were UK resident) of which you are a material participator or their associate, in the case of distributions that are dividends, those out of trade profits arising in the temporary period of non-residence are not taxable — ‘Distributions’ includes dividend income received by a person abroad which you have power to enjoy, under the Transfer of Assets Abroad code (see manual HS262)
• loans to participators of close companies that are released or written off but not taxable at that time under the terms of a double taxation agreement (see manual CTM61657)
• gains on life insurance, life annuity or capital redemption policies (see manual IPTM3300), for these gains, time apportionment is available for the period of non-residence (see manual IPTM3734)
• Offshore Income Gains (see Investments Funds Manual IFM12100 and Investment Funds Manual IFM17100), except for those accruing from assets both acquired and disposed of in the period of temporary non-residence, which are not linked with an earlier period of residence (see the section ‘What gains and losses are included’ above)

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