UK CGT due made on gains made while temporarily non-resident

[olly67]

I am a UK citizen. I left the UK to work in the US, and earned shares in a company while there. I left the US, and ceased to be tax resident there (i.e. I met the non-tax-resident requirements). After that, I sold the shares, for a profit. In the UK tax year that I made that sale, I met the UK's statutory non-tax-resident requirements. In the following tax year, I returned to the UK, and became tax resident there. My period of non-residence of the UK was less than 5 years. Between my tax residence in the US and the UK, I did not meet statutory tax residence requirements in any third country. Do I owe any UK CGT on the gains from the share sale?

My view is that I don't. Even though I was only temporarily non-resident, Guidance HS278: Temporary non-residents and Capital Gains Tax makes clear that assets acquired and disposed of during the period on non-residence are not eligible for UK CGT on return to the UK. Do you agree?

If HMRC tried to claim this was tax avoidance, what argument would they use? What would I need to prove to argue it wasn't?

[darthblingbling]

If you returned to the UK permanently it would be highly unlikely you were non resident for that tax year, albeit there are some edge cases. How confident are you that you have applied the tests correctly? What did you do between leaving the US and returning to the UK?

Assuming you are non resident in both the UK and the US at the point of disposal, whilst the UK does not typically levy CGT on non residents if it's just a disposal of shares (and would be out of scope anyway if non UK situs) I do not believe the US is the same for US situs shares. So without protection from a tax treaty you may find you'll still be liable for tax in the US.

But you are correct, under temp non resident rules, if you acquired the assets whilst non resident it shouldn't be caught.

Care also has to be taken with cost basis. If the shares were acquired at no cost or under market value, whilst the difference may have been treated as earnings in the US, the amount deemed to be earnings in the US may not necessarily add to the cost basis in the UK.

[olly67]

I didn't return to the UK permanently until after the start of the next tax year. Between leaving the US and moving to the UK, I was in other countries. I'm pretty sure I've applied the UK residence tests for all years correctly.

Regarding US taxes, I don't believe the US charges non-residents CGT (regardless of tax treaty status), only tax on US-sourced income, e.g. share dividends. Otherwise, fewer people would buy assets in the US. Legalclarity.org (https://legalclarity.org/non-resident-capital-gains-tax-rules-in-the-us/) states:

"NRAs are only subject to US taxation on income that originates from US sources. For capital gains, the primary categories of assets that generate taxable US-source income include real property interests and certain tangible property located within the US. Gains from intangible assets, like stock or bonds, are generally considered foreign-sourced unless a specific statutory exception applies."

Without a W-8BEN, brokers may withhold some of the sale value, but you can still claim this money back from the IRS.

[darthblingbling]

Guess you're golden then

[olly67]

Further to this, even though I earned the shares while working for the company, as I left the company and the US, and sold them in the next US tax year, some crude, AI-assisted research tells me that the gains on those shares are not considered effectively connected to US trade or business.

So I believe I have paid the correct amount of CGT to both the US and UK - none.

[darthblingbling]

Only thing to flag, but it sounds like you've figured it out already, just make sure you were deffo non resident in the US. Sounds like you were in a period where you were tax resident nowhere.