When HMRC can challenge CGT free disposals after you've left the UK
If you're planning to leave the UK to avoid CGT ensuring that you correctly time any disposal is crucial.
The benefit of course is that individuals who are non UK resident and non UK ordinarily resident are usually exempt from UK CGT.
Usually someone emigrating will be treated as not resident and not ordinarily resident from the date of departure. As such if the disposal occurs before the date of departure the individual will be liable to UK CGT.
There is no capital gains exit charge that applies to individuals when they emigrate from the UK (unlike companies).
For most long term UK residents if the disposal occurs after the date of departure but before the following 6 April there will still be a charge to CGT. They would need to ensure that a disposal occurs after 5 April following departure for the gain to be exempt.
So providing you genuinely delay any disposal until after the 5 April following your departure from the UK there will be no charge to UK CGT.
You could still of course be caught if you returned to the UK within a period of 5 complete tax years.
When can HMRC challenge the CGT exemption for non residents?
There are three main cases when HMRC may look to argue that CGT could apply even though you have tried to delay a disposal until after 5 April after your departure.
These are where it can be shown that:
1.there was a binding agreement or contract for sale on or before the date of emigration or
2.a business was carried on in the UK through a branch or agency in the period from the date of emigration to the date of disposal or
3.an attempt has been made to use ESC D2 for tax avoidance.
Binding contract before leaving UK One of the options available to HMRC is to argue that you actually had a binding contract to sell before you left the UK. Note that the date of disposal for an unconditional contract (ie where there are no conditions to be satisfied before the disposal goes ahead)is the date the contract is entered into (also known as the date of the transfer of the beneficial interest. Note the date of completion. Therefore if you made a contract before you left you could still be subject to CGT even if the date of completion was after you were non resident. A common situation is for an individual to negotiate the terms for a disposal but to delay signing the written contract until after the date of departure from the UK. Alternatively, he could give his solicitor a power of attorney under which the solicitor can sign and exchange the contracts on behalf of the vendor once he is outside the UK (and in the new tax year). In most cases, HMRC would still not be able to argue that there was a binding contract whilst UK resident. It should also be remembered that any agreement (ie oral or written), which remains `subject to contract' is not a binding contract. Land In the case of land and property situated in England & Wales there would in any case be no CGT charge if it was not sold until after 5 April following your departure. This is because in order for there to be a valid contract is needs to be legally evidenced in writing. As such HMRC could not argue there was a binding oral contract to sell prior to leaving the UK. Not that this only applies to land/property situated in England & Wales. Land in Scotland for instance could still be subject to an oral agreement to sell. Also other assets eg Goodwill could be subject to an oral agreement to sell. In practice though arguing that there is a binding agreement to sell that arose whilst you were UK resident would be difficult. They would need to review the circumstances in detail. UK business If you're carrying on a UK trade before leaving the UK and then sell it as a going concern after you've left the UK it would still be subject to UK CGT. This is because it would be classed as a UK branch/agency trade. The best way to avoid this is to incorporate into a company and then sell the shares in the company. Withholding the benefit of ESC D2 For individuals who've been in the UK for less than 4 years in the last 7 they can claim the benefit of ESC D2 so that they're exempt from CGT as soon as they leave the UK. However HMRC can refuse this concession if there is tax avoidance motive. They have however confirmed that In straightforward cases where the contract of sale is delayed until after the date of emigration, they will not withhold the concession. The net effect of all of this is that delaying the date of disposal (remember it's the date of the contract not completion that's crucial here) until after 5 April after you've left the UK should enable you to avoid UK CGT on non-UK business disposals. You would need to remain non resident for 5 complete tax years to ensure the gain is not charged on your return.
2.a business was carried on in the UK through a branch or agency in the period from the date of emigration to the date of disposal or
3.an attempt has been made to use ESC D2 for tax avoidance.
Binding contract before leaving UK One of the options available to HMRC is to argue that you actually had a binding contract to sell before you left the UK. Note that the date of disposal for an unconditional contract (ie where there are no conditions to be satisfied before the disposal goes ahead)is the date the contract is entered into (also known as the date of the transfer of the beneficial interest. Note the date of completion. Therefore if you made a contract before you left you could still be subject to CGT even if the date of completion was after you were non resident. A common situation is for an individual to negotiate the terms for a disposal but to delay signing the written contract until after the date of departure from the UK. Alternatively, he could give his solicitor a power of attorney under which the solicitor can sign and exchange the contracts on behalf of the vendor once he is outside the UK (and in the new tax year). In most cases, HMRC would still not be able to argue that there was a binding contract whilst UK resident. It should also be remembered that any agreement (ie oral or written), which remains `subject to contract' is not a binding contract. Land In the case of land and property situated in England & Wales there would in any case be no CGT charge if it was not sold until after 5 April following your departure. This is because in order for there to be a valid contract is needs to be legally evidenced in writing. As such HMRC could not argue there was a binding oral contract to sell prior to leaving the UK. Not that this only applies to land/property situated in England & Wales. Land in Scotland for instance could still be subject to an oral agreement to sell. Also other assets eg Goodwill could be subject to an oral agreement to sell. In practice though arguing that there is a binding agreement to sell that arose whilst you were UK resident would be difficult. They would need to review the circumstances in detail. UK business If you're carrying on a UK trade before leaving the UK and then sell it as a going concern after you've left the UK it would still be subject to UK CGT. This is because it would be classed as a UK branch/agency trade. The best way to avoid this is to incorporate into a company and then sell the shares in the company. Withholding the benefit of ESC D2 For individuals who've been in the UK for less than 4 years in the last 7 they can claim the benefit of ESC D2 so that they're exempt from CGT as soon as they leave the UK. However HMRC can refuse this concession if there is tax avoidance motive. They have however confirmed that In straightforward cases where the contract of sale is delayed until after the date of emigration, they will not withhold the concession. The net effect of all of this is that delaying the date of disposal (remember it's the date of the contract not completion that's crucial here) until after 5 April after you've left the UK should enable you to avoid UK CGT on non-UK business disposals. You would need to remain non resident for 5 complete tax years to ensure the gain is not charged on your return.