How to avoid Capital Gains Tax by Emigrating

Some years ago, it was possible, under certain circumstances, to be treated as non-UK resident for Capital Gains Tax purposes immediately on departure from the UK. Sadly, this facility is no longer available and a taxpayer generally remains liable to UK Capital Gains Tax on any gains arising during the tax year in which they emigrate.

Hence, if intending to avoid UK Capital Gains Tax on a gain due to arise in 2013/14 by emigrating abroad, you should ensure that you leave the UK by 5th April 2013 at the latest. Furthermore, to avoid a clawback of Capital Gains Tax on your return, you will need to remain non-UK resident for at least five complete UK tax years. Those emigrating during 2012/13 to avoidUK Capital Gains Tax need to plan on staying away until at least 6th April 2018.

Non-residence can sometimes be maintained despite some limited return visits to the UK, not exceeding:

• 182 days in any one tax year, and

• 90 days per UK tax year on average

Any day on which you are present in the UK at midnight is counted for the purpose of these tests unless you are merely in transit from one foreign country to another.

It is important to understand, however, that the tests given above are intended as basic guidelines only. These basic rules are just the beginning. They are effectively just a preliminary test which a taxpayer must pass before we can even begin to consider if they might be non-UK resident.

Recent case law suggests that a much harsher view is now being taken on the question of emigration. In practice, it is not sufficient just to meet the basic rules set out above and the taxpayer’s overall situation must be reviewed to determine if they can genuinely be regarded as non-UK resident.

The position may become a little clearer in future, as the Government is hoping to introduce a statutory residence test from April 2013, following a further period of consultation.