Avoiding CGT prior to moving abroad

[Jetsetter4805]

Hi,

I am currently a UK tax resident and have been operating through a UK Limited Company over the past few years. I have chosen to restrict dividend payments each year and now have a reasonable amount of cash sitting in my company's bank account.

The company has now stopped trading and I am planning to liquidiate it after disposing of assets (i.e. cash) early next year. HMRC have given clearance that Entrepreneur's relief would apply. I have no wife/children in the UK nor do I own any property or other fixed assets in the UK. I am planning to move and settle (purchase a property) to another country within the EU and I am wondering if there is scope to transfer the cash to myself after leaving the UK but before arriving and settling in the other EU country i.e. going on holiday for two weeks to a third country in between leaving the UK and establishing residence in a new EU country.

As the tax in question would be CGT, could I leave the UK mid March 2012 and claim split year treatment from that point or should I wait until the new tax year 6 April 2012?

Many Thanks

[maths]

Assuming you have been UK resident for at least 4 out of the last 7 UK tax years then split year treatment will not apply re CGT (see ESC D2) ie a disposal in the balance of the tax year of departure will fall subject to CGT.

Disposal will need to be in a tax year after you have become non-UK resident and you will need to remain non-resident for 5 full tax years.

In principle,leaving the UK and effecting any disposal prior to acquiring residence elsewhere should be feasible.

[Jetsetter4805]

Hi Maths,

Many thanks for that. Since making the initial post I discovered through some research that split year treatment would not apply to me for the reasons you stated.

I do have some flexibility in relation to my departure date so if I leave the UK on say 1st April 2012, create the capital gain on 10th April and establish residence in a new country on 14th April then avoiding CGT in the UK would seem to work, assuming that I remain outside the UK for 5 full tax years as you state. If I did return to the UK within those 5 years then I assume I would simply have to declare the gain in the year of my return.

Am I right in thinking that I would not be able to acquire any property in the UK during those 5 full tax years?

Thanks again.

[Jetsetter4805]

Also, to what extent should I restrict my visits to the UK during those 5 full tax years? Would the 90 day average rule apply?

Many Thanks

[mullet]

Also, to what extent should I restrict my visits to the UK during those 5 full tax years? Would the 90 day average rule apply?

This came up in the Robert Gaines-Cooper case. The day count demonstrates continuing non-residence. You have to establish non-residence in the first place. An important principle is severing ties with the UK, so owning UK property will not help you at all.

You would need to be sure that the CGT rules in your intended country of residence suit you. For instance, that split year treatment in the year of arrival is possible if that country (like the UK) charges CGT in respect of disposals in a (full) tax year any part of which you are resident there.

BTW, Belgium does not have CGT. It is not the loveliest EU country, but an abundance of beer, chocolate and chips with mayonnaise might sway you ...

[mullet]

PS Mayonnaise just on the chips ... sorry for ambiguity.

[maths]

Bear in mind that the current rules re residence and split tax years apply for 2011/12 but thereafter a new set of statutory rules are almost certainly going to apply. It is therefore important to not fall foul of the new rules (applicable from 6 April 2012).

It is likely that some amendments to the current proposals will occur. The proposals in the light of comments now received will appear in the Finance Bill (published December 2011).

Until matters are clearer it is difficult to advise as to post 6 April 2012 action.

However, prima facie, I would be inclined to leave on or before 5 April 2012. I would not purchase a UK property for the time being but if you leave the UK and spend very little time (eg up to 30 days, say) back in the UK thereafter it is likely that purchase of a UK property (whilst generally not a good idea) may not in fact give rise to UK residency on or after 6.4.12.

[Jetsetter4805]

Thanks both for your feedback.

Mullet, I do not own any property in the UK nor do I have a family here. I only have some bank accounts and an ISA and I don't intend to acquire any more assets.

The country I will move to is Sweden. I have done some research and have established the following:

"An individual who is regarded as tax resident in Sweden is in principle liable to Swedish tax on worldwide income from the date of arrival. The cash principle applies when determining the point of taxation and tax year. Hence, only those payments received during residency in Sweden are taxable at the ordinary rates.

However, payments for work performed in Sweden are taxable even if received before arrival or after departure, but normally at the lower non-residents flat rate of 25%. The cash principle does not apply to business income. Special rules apply to capital gains."

Does anyone know how I can find out for sure if capital gains made prior to arrival (but in the same tax year) will not be taxed in Sweden? Is there a country guide similar to the PWC one that could clarify this or do I need to engage the services of a Swedish advisor to answer this one question?