CGT and Emigration

[Charles Forber]

Although the matter is not one of consequence at this moment in time, I am performing some initial enquiries which I hope will lead me into a position of readiness when I need to take action.
My wife and I are currently Directors and majority shareholders in a small but expanding telecommunications business that we set up some three years ago, with the aim of selling within a maximum of seven years from now (hopefully, if the climate is right, within the next three). We also intend, immediately after the sale, to emigrate to France on a permanent basis to start a new life and a business totally unrelated to the one in which we are currently involved.
My question is therefore this: what will our position be in terms of CGT upon the sale of our shares in our current business, bearing in mind that we will be leaving the UK for good? Are we still liable for CGT on these shares, or can we avoid this tax expense through emigration? Furthermore, are restrictions applied in terms of retaining current assets (such as a residential property) or even returning to the UK if tax avoidance is possible in this situation?

[taxman]

Where an individual makes a capital gain while not UK resident (“NR”) and not ordinarily resident (“NOR”) in the UK, and he remains NR and NOR for a period of five consecutive tax years, including the year in which the gain is made, then there will be no UK capital gains tax liability on the gain.

Where an individual makes a gain while NR and NOR, but becomes UK resident again within 5 years, the gain will be subject to UK capital gains tax in the tax year in which he returns to the UK.

broadly presence in the UK for more than 182 days in a tax year will lead to an individual being treated as UK resident for that year. Visits of on average more than 91 days in a tax year will lead to an individual being treated as ordinarily resident for the tax years in question.

Clearly this is only a summary, the rules regarding residence are particularly detailed, and if you should require more detailed guidance, please e-mail me at the above address.

[steve@nunn-hayward.c]

Hi Charles,

You are right to seek advice now prior to sale. I would strongly advise you however to set out clearly for yourself and your advisors what you are trying to acheive, what life-style issues cannot be altered no matter how much tax is at stake and those that could be. It is all too easy to compose the "perfect" tax planning stucture that you know deep down will not work due to restrictions on your lifestle.

It seems to me likely that your Company and your share holdings should qualify for Business Asset Taper Relief for Capital Gains Tax. At worst you are "higher rate" taxpayers and under current rules should pay only 10% tax as a UK resident. 10% tax on the gain and little /no risk/cost or complexity is in my view now quite attractive.Certainly the details need to be checked and reviewed regularly prior to sale.

Bearing this in mind however, the possibility of No tax as a Non UK Resident is worth examining. The previous responndant covered this issue, to which I would add only two points.

Firstly, the position as a resident of France must be considered.CGT there is I beleive 18%. The interaction of the tax rules in these Juristictions must be considered in any planning.

Secondly, on a practical level it may prove awkward to sell/complete a sale if you are overseas.

I would be interested to have a chat with you to assess your requirements. Please call me if you would like to take matters further.

Regards

Steve Cook
Tax Partner, Nunn Hayward Chartered Accountants.
01753 - 888211

[taxman]

I agree with the above, however I would should strongly advise that a review of the taper relief position of the company is undertaken now. The 10% CGT rate is not a guarantee and it worthwhile to assess the taper relief status of the company now, as action can then be taken to remedy the position so that the 10% rate could be obtained on a future disposal.
There are many reasons why the 10% rate of CGT may not be obtained, and it would be necessary to consider the activities/assets of the company to determine whether there are any elements that can be classed non trading (even excess cash sitting in the bank can in certain circumstances be classed as non trading), and the position of the shareholders.
It is made more complex as the rules changed in 2000,(and again recently) and so a shareholder may qualify post 2000, but not before, the effect of this is to substantially increase the rate of tax.
If you therefore consider that the disposal of the shares would not be undertaken whilst you are non resident, then i would advise you ask someone to look at the taper relief position now to ensure that the company has qualified and will continue to qualify for business asset taper relief.
Clearly the franch tax implications would also need to be considered, however if you require I could obtain detailed advice from one of my colleagues in our french office to provide details.