ATXP6 UK
Syllabus A2. Chargeable gains A2b. The scope of CGT

A2biv. Double tax relief

Syllabus A2biv)

Determine the UK taxation of foreign gains, including double taxation relief

Sale of foreign located assets

Double tax relief (Foreign gains)

If you are UK resident, you will pay UK CGT on your worldwide gains. 
However, if you have a property located outside of the UK – if you sell it, you will have to pay CGT in the country of sale and in the UK. 
This means, that you are paying tax two times on the same capital gain.
The government offers relief for this in the form of double tax relief.

Double tax relief

Double tax relief is available to offset any double tax suffered on assets disposed of abroad.

The DTR given is the lower of:

  1. Overseas tax suffered

  2. UK tax on that gain

Illustration

Frances Bond is resident and domiciled in the UK. 

During 2018/19 he earns £50,000. He has a residential property in Spain which he sells in October 2018 for £80,000, incurring Spanish taxes of £8,000. 

This is his only gain of 2018/19. 

He had bought the villa in June 1996 for £25,000, and uses it only for holidays 

Calculate the capital gains tax liability in 2018/19.

  • Solution

    CGT payable on disposal of the villa in Spain 

    Disposal of the villa 2018/19 
    Sale proceeds £80,000
    Less: Cost (£25,000)
    Capital gain £55,000
    Less: Annual exempt amount (£11,700)
    Taxable gain £43,300

    Capital gains tax 28% x £43,300 = £12,124
    Less: 

    DTR Lower of: 
    (1) Foreign tax suffered (£8,000)
    (2) UK CGT on the villa 

    CGT payable £4,124