Avoid CGT on shares by moving to Gibraltar

Question:

Good Morning

I have a client who might sell his share holding in a UK based company for a large gain that will exceed entrepreneurs relief. He is interested in relocating to Gibraltar. I have researched the tax position there and it looks very favourable. But the article implies that CGT will still have to be paid in the UK? So if he becomes non resident a year before the shares are sold and lives in Gibraltar for say five years would that eliminate CGT?

I had another thought if he set up a company in Gibraltar and purchased shares in it and was not non resident would that work? I have a feeling he does not really want to leave the UK.

Answer:

Provided he became non UK resident and non UK ordinarily resident as you state he could sell the UK shares free of UK CGT. He would need to leave the UK in the tax year prior to the disposal and as you state would need to ensure that his absence from the UK covered a period of at least 5 complete tax years. In terms of the overseas jurisdiction, there are lots of options in terms of avoiding CGT. Gibraltar would be a good option as would Malta.

Whilst both are free of CGT, in terms of minimising ongoing taxes I believe Malta offers the a very attractive 'minimum' tax payable on other income, if income is retained abroad.

It is also very straightforward to establish residence. Cyprus is also another popular option to avoid CGT on UK shares as are the IOM and Channel Islands.

Note that whichever country he used as a 'low tax base' he'd need to ensure that he was not classed as a tax resident in another higher tax country such as the UK or Spain etc. Establishing tax residence in a low tax jurisdiction can make it easier to establish non UK residence in terms of supporting the permanent departure, but this would not prevent another country taxing the gain if he was a tax resident.

He would therefore need to be very careful both in terms of his days spent in overseas countries after he left the UK and establishing close ties in another jurisdiction (other than the low tax jurisdiction).

In terms of your other point:

I had another thought if he set up a company in Gibraltar and purchased shares in it and was not non resident would that work? I have a feeling he does not really want to leave the UK.

How would he sell the shares in his UK company free of tax? Any transfer of the UK shares would be a chargeable disposal by him unless he was non resident.

Therefore even if he set up a a Gibraltar company and established it as a non resident if he was UK resident when he transferred the shares it would be subject to CGT. Even if he used a share exchange/reorganisation (which he would be unlikely to get clearance for in any case) the gain would be apportioned back to the UK shareholder under the anti avoidance rules.

About the Author

He worked in Ernst & Youngs Entrepreneurial Services department for a number of years before setting up his own tax planning practice. He is now a full time tax author.

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