International aspects of personal taxation for ATX-UK

Part 4 of 4

This is the Finance Act 2023 version of this article. It is relevant for candidates sitting the ATX-UK exam in the period 1 June 2024 to 31 March 2025. Candidates sitting ATX-UK after 31 March 2025 should refer to the Finance Act 2024 version of this article (to be published on the ACCA website in 2025).

So far we have looked at the income tax (IT) aspects of overseas income in some detail. In this final part of the article we are going to look at capital gains tax (CGT) and inheritance tax (IHT).

Liability to UK CGT

The key factor in determining an individual’s liability to UK CGT is tax residence. Domicile is only relevant where a UK tax resident individual has realised gains on the disposal of overseas assets. Figure 6 sets out the liability of an individual to UK CGT on both UK and overseas assets.

Figure 6 – Liability to UK CGT

Note the following:

• To be outside of UK CGT, an individual must be non-UK tax resident and must not be a temporary non-UK tax resident.
• UK CGT applies to worldwide assets. Once an individual is subject to UK CGT it is then necessary to consider the person’s domicile status to determine the treatment of gains on overseas assets.
• The rules set out in Part 3 of this article in respect of the remittance basis apply to chargeable gains as well as to income. Note that the de minimis limit of £2,000 applies to the total of unremitted income and gains.
• An individual who is non-UK tax resident is still subject to UK CGT on disposals of:
  • UK assets used in a trade based in the UK, and
  • land and buildings situated in the UK

but not on any other assets.

The rules for temporary non-UK tax residents were introduced in order to prevent individuals avoiding UK CGT by going abroad for a relatively short period of time, becoming non-UK tax resident and then selling assets outside the scope of UK CGT. The rules apply to individuals:

• who have been UK tax resident for at least four of the seven tax years prior to the year of departure, and
• who leave the UK for a period of five years or less.

Gains made on assets owned at the time of leaving the UK, but sold whilst the individual is outside of the UK, remain subject to UK CGT. Gains on assets purchased after leaving the UK and sold whilst the individual is outside of the UK are NOT subject to UK CGT.

EXAMPLE 2 – Bosun
Bosun has always been UK tax resident and domiciled. On 1 June 2022 he left the UK and became non-UK tax resident. His intention was to remain outside of the UK for four years. In 2024/25 Bosun sold some shares (acquired in 2016), and a painting (acquired in 2024).

Bosun’s liability to UK CGT following his departure from the UK is as follows:

• Bosun is not tax resident in the UK. Accordingly, he will not be subject to UK CGT unless he is caught by the rules for temporary non-UK tax residents.
• If Bosun returns to the UK as planned he will have been outside the UK for less than five years and will therefore be a temporary non-UK tax resident. The gain on the shares will be taxed in the year he returns.
• If he is non-UK tax resident for more than five years, the gain on the shares will not be subject to UK CGT.
• The gain on the painting will not be subject to UK CGT regardless of when Bosun returns to the UK because it was acquired after Bosun left the UK.

Liability to UK IHT on overseas assets

Domicile status is the key factor in determining an individual’s liability to UK IHT on overseas assets. Overseas assets are only subject to UK IHT if the individual is either domiciled or deemed domiciled in the UK.

In addition to the deemed domicile rules reviewed earlier, which are relevant for IT and CGT, you need to be aware of the additional rules whereby an individual can be deemed to be domiciled for the purposes of IHT.

Long term tax residents and individuals born in the UK with a UK domicile of origin may be deemed domiciled for the purposes of IT and CGT. They will also be deemed domiciled for the purposes of IHT if they satisfy certain additional rules

In addition, an individual who ceases to be domiciled in the UK is deemed domiciled in the UK for the next three years for the purposes of IHT.

Double tax relief and treaties

An individual who is liable to UK IT on worldwide income may find that income arising in respect of overseas assets is taxable in two countries – the UK, and the country in which the income arises. A similar situation may arise in respect of CGT or IHT. Relief may be available via either a double tax treaty or double tax relief.

A double tax treaty, between the UK and the country in which the income arises, will set out how double taxation is to be avoided or minimised. The treaty could state that the income will only be taxed in one of the countries concerned (for example, the country in which the income arises). Alternatively, it could impose a maximum rate of tax in one of the countries.

UK double tax relief is available where there is no treaty or where an element of double taxation occurs, despite the existence of a treaty. It is available in respect of all sources of overseas income including employment income. It is also available in respect of CGT and IHT. Overseas tax suffered, up to a maximum of the UK tax on the overseas income (or transaction, subject to CGT or IHT), is deducted from the UK tax liability.

Conclusion

International travellers add an extra dimension to exam questions because their liability to UK taxes changes as they move to, or from, the UK. When answering a question that includes an international traveller:

• Be specific and precise in your terminology.
• Be careful to address only those issues asked for in the requirement.
• Ensure that you are always clear as to which tax you are writing about.

Written by a member of the ATX-UK examining team

The comments in this article do not amount to advice on a particular matter and should not be taken as such. No reliance should be placed on the content of this article as the basis of any decision. The authors and the ACCA expressly disclaim all liability to any person in respect of any indirect, incidental, consequential or other damages relating to the use of this article.