Gains accruing under TCGA 1992 s.168
TCGA 1992 s.168 provides that, where an individual ceases to be resident in the UK and, whilst he has been UK resident, an asset has been transferred to him and hold-over relief under TCGA 1992 s.165 or s.260 applied to that transfer, a gain equal to the previously held-over gain is deemed to have accrued to him immediately before the time at which he becomes non-resident.
Split years
As one becomes non-UK resident for a fiscal year, it will often be the case that the period ending immediately before the individual ceases to be UK resident will be the overseas part of a split year.
If a person who becomes non-UK resident for, say, 2027/28 has a split year in 2026/27 he will become non-resident on 6th April 2027 and be deemed to realise a gain equal to the previously held-over gain on 5th April 2027. That will be during the overseas part of his split year. TCGA 1992 s.1G applies to gains accruing to individuals in split years and subsection (2) ibid provides that:
‘Gains accruing to the individual in the overseas part of the tax year are chargeable to capital gains tax only if they accrue on the disposal of assets within section 1A(3).’
So, in these circumstances, unless the held-over gains accrued on assets within s.1A(3) the gains which are treated as accruing under s.168 will not be chargeable to CGT. Assets within s.1A(3) are those within a restricted class consisting of interests in UK land, certain UK situated assets connected to a UK branch or agency and assets deriving 75% or more of their value from UK land.
The draftsman of the Finance Act 2013, in drafting the SRT provisions, appears to have overlooked s.168 which will, as a result, often miss its target.
Temporary periods of non-residence
One might ask what will be the effect of the gains treated as accruing under s.168 being treated as accruing in a temporary period of non-residence because that period includes the overseas part of the split year before the year for which the individual first became non-resident. Will those gains be treated as accruing to the individual in his period of return under TCGA 1992 s.1M(2) which applies to gains arising to an individual who is temporarily non-resident? Section 1M(1) provides:
‘If, in the case of the disposal of an asset by an individual who is temporarily non-resident—
(a) a gain or loss accrues to the individual in the temporary period of non-residence, and
(b) the asset is not excluded from this subsection by section 1N (certain assets acquired in that period),
the gain or loss is treated instead as accruing to the individual in the period of return.’
So, this provision applies only in respect of ‘a disposal of an asset by an individual who is temporarily non-resident’. We have seen, however, that s.168 provides that where its conditions are satisfied:
‘ … a chargeable gain shall be deemed to have accrued to the transferee immediately before … [the time he becomes non-resident] … and its amount shall be equal to the held-over gain …’.
So, s.168, therefore, treats gains as accruing but it does not treat them as accruing on the disposal of any asset. So, the condition of s.1M that:
‘… in the case of a disposal of an asset by an individual who is temporarily non-resident –
- a gain or loss accrues to the individual in the temporary period of non-residence, …’
is not satisfied in respect of gains accruing under s.168 because those gains do not accrue on a disposal.
A useful argument
Of course, with anomalies such as these, there is always the possibility that the Courts will simply ignore the plain words of the legislation either on the basis that there has been a drafting error (see Inco Europe Ltd v First Choice Distribution [2000] 1 WLR 586) or applying a broadly purposive construction. Nonetheless, although one would not plan one’s transactions on the basis that the Court will apply the plain words of these provisions, if one is dealing with past transactions on which gains under TCGA 1992 have arisen which would otherwise be chargeable, the anomalies we have identified could be the basis of a very useful argument indeed.
