ACCA ATX ^UK Syllabus A2. Chargeable gains - Residence, Domicile and Deemed Domicile for CGT - Notes ^{2 / 6}

What is UK CGT paid on?

UK Residence

Capital gains tax implications

An individual’s residence status must be determined because, if they are UK resident – they will pay UK capital gains tax on their worldwide gains, but if they are not, they will only pay UK capital gains tax on their UK situated land and buildings.

Illustration – UK resident

John is UK resident and has capital gains of assets situated in the UK of £60,000 and an overseas gain from the sale of a villa in Spain of £10,000.

How much UK capital gains tax will he pay?

He is a higher rate tax payer.

Solution
UK gains£60,000
Overseas gains £10,000
Total gains £70,000
Less:
A.E. (£3,000)
Taxable Income £67,000
£67,000 * 20% = £13,400
UK capital gains tax payable £13,400

Domicile

An individual’s domicile is usually the country in which they have their permanent home.

An individual acquires a domicile of origin at birth, which is the permanent home of the father.

Individuals retain this domicile until they acquire a different domicile, either through dependency if under 16 and their father changes his domicile, or by severing ties with the old country and acquiring a domicile of choice.

Deemed Domicile

An individual may be deemed domicile if they are not domicile under general law but they satisfy either one of two conditions.

First condition, which is relevant to formerly UK domiciled residents, is that the individual will be deemed domicile if the individual:

Was born in the UK; and
Has a UK domicile of origin; and
Is UK resident in the relevant tax year.

Second condition, which is relevant to long-term UK residents, is that the individual will be deemed domicile if they have been resident in the UK for 15 of the 20 years immediately preceding the relevant tax year.

Illustration – Deemed UK domiciled first condition

Clare was born in the UK and her father was domiciled in the UK until he and the family moved to New Zealand when Clare was 10 years old. Her father became domiciled in New Zealand and so Clare acquired a domicile of dependency in New Zealand. Clare is UK resident in the tax year 2024/25.

Will Clare be deemed UK domiciled in the UK in 2024/25?

Solution

Clare will be deemed UK domiciled in the UK in the tax year 2024/25 because she satisfies all three parts of the first condition.

Illustration – Deemed domicile second condition

Tom was born in Australia, his father had a UK domicile and so Tom had a UK domicile of origin. Tom moved to the UK in 2017/18 and became UK resident in that tax year.

Will Tom be deemed UK domiciled in 2024/25?

Solution

No. Tom only satisfies 2 of the 3 parts of condition one and he does not satisfy condition two as he has not been UK resident for 15 years.

UK Resident but not UK Domiciled/Deemed Domiciled

If an individual is UK resident but not UK Domiciled/Deemed Domiciled, there are 2 options for taxing income that arises overseas (Overseas gain).

Remittance Basis – whatever overseas income/gain exists, you only pay UK capital gains tax on the amount of income that you send back to the UK.
Arising Basis – whatever overseas income/gain exists, UK capital gains tax is paid on it entirely.

Illustration – Remittance basis

John has been a resident in the UK for 1 year and has capital gains of assets (not residential property) situated in the UK of £60,000 and an overseas gain from the sale of a villa in Spain of £10,000.

He sends £5,000 of the rental income back to the UK.

He is a higher rate tax payer.

How much UK capital gains tax will he pay If he chooses the remittance basis?

Solution
UK gain £60,000
Overseas gain £5,000
Total gain £65,000
Less:
A.E. (£nil) - remember that the AE is not available to taxpayers using the remittance basis 
Taxable Gain £65,000
£65,000 * 20% = £13,000 (higher rate tax payer and non residential property)
UK capital gains tax payable = £13,000

Illustration – Arising basis (same details as the previous scenario)

He sends £5,000 of the rental income back to the UK.

He is a higher rate tax payer.

How much UK capital gains tax will he pay If he chooses the arising basis?

Solution
UK Gain £60,000
Overseas gain £10,000
Total gain £70,000
Less:
A.E. (£3,000)
Taxable gain £67,000
£67,000 * 20% = £13,400
UK capital gains tax payable = £13,400
Conclusion
The Remittance basis looks like the expensive option because John loses his entitlement to the Annual Exemption (AE). The decision whether or not to claim the remittance basis should be considered year by year as, depending on the level of unremitted income, sometimes it will be the cheaper option.
Once the taxpayer has been resident in the UK for more than 7 years, the remittance basis is likely to be the more expensive option due to the remittance basis charge.

Consequences of choosing the remittance basis

UK Tax on remitted income
Remittance Basis Charge
No annual exemption available for capital gains tax.

Remittance Basis Charge

If prior to the current tax year a person has been UK resident for at least 7 tax years then by making the remittance basis election they must pay HMRC a remittance basis charge.

This is similar to paying tax on their unremitted income, except that it’s just a flat charge.

Prior to the current tax year the person was UK resident for at least 7 out of the last 9 tax years
RBC £30,000
Prior to the current tax year the person was UK resident for at least 12 out of the last 14 tax years
RBC £60,000

Illustration

Kailash is domiciled in India.

He has been UK resident since 01/04/2017 and earns a salary of £125,000 p.a.

He realises chargeable gains every year equal to his annual exempt amount.

He sold a property in India for £200,000 and realised a chargeable gain of £70,000.

He has remitted £20,000 of the gain back to the UK.

With regards to the UK tax payable for the overseas gain, which is more beneficial for him, the remittance or arising basis in 2024/25?

Solution
Remittance basis
UK resident 06/04/2017-5/4/2025 = 8 tax years
R.B.C £30,000
Capital gains tax computation:
Capital gain = £20,000 * 20% = £4,000 + £30,000 = £34,000 (no AE available)
Arising basis
Capital gain £70,000 * 20% = £14,000
Conclusion
He should choose the arising basis as this saves him (£34,000 - £14,000) = £20,000.