Capital Gains Tax

[Eneukman 1]

Question for all you tax experts:D

 

I left the UK in August of last year, told the Revenue and completed the appropriate form to say I now wanted to be treated as being non-resident.

 

I have a number of stock exchange investments and am aware that I remain liable for any Capital Gains Tax that may arise from the sale of those I held BEFORE I left the UK until 4 complete tax years have elapsed. There is a further proviso that would come into effect if I returned to the UK but as I have no intention of doing that, I can ignore that.

 

My question is - What is the Capital Gains Tax position regarding the investments I bought AFTER I left the UK but in the same tax year. Are they fully exempt from Capital Gains Tax (assuming I don't return to the UK)? Or do I need to be away from the UK for 4 full tax years?

 

Alan

[elef 0]

I'm a tax expert but not on british tax law - but I can see one very important thing and that's your domicile - have you acquired a new domicile according to british tax law in an other country? Living outside UK is not enough for that.

[Eneukman 1]

I'm a tax expert but not on british tax law - but I can see one very important thing and that's your domicile - have you acquired a new domicile according to british tax law in an other country? Living outside UK is not enough for that.

elef,

 

I understand the point you make, but under UK law, it is possible to be domiciled in one country and resident in another.

 

I am resident in Thailand (for income tax purposes) but am still domiciled in Scotland for Inheritance Tax purposes. There is also a not-resident but domiciled option for income tax purposes, which I don't think applies to me as none of the interest I earn outwith the UK is remitted there.

 

Acquing a new domicile is very difficult and I need to absent from the UK for at least 3 full tax years. I must also not own a property in the UK in which I can live on visits back to visit family etc. (not 100% correct as I managed to prove US domicile for a Scot who still owned a home in his native Helensburgh).

 

The most important factor in deciding domicile is intention. Therefore you will NEVER see me stating publicly that I really want to go back to Scotland. Quite the opposite, I will always state publicly that I have no regrets whatsoever about having moved to Thailand to live, which is the absolute truth.

 

Alan

Edited June 4, 2006 by Eneukman

[Owen` 2]

An idea that works in the US when things like this arise.

 

If you have some stock that has done well but that you don't want to endure the tax hit on, and you think it might be impervious to market declines, then simply wait for one. Sell some other mutual funds or stocks that DO decline -- and establish a capital loss. Then also pick that year as the year that you sell the item in question. Its gain should be cancelled by the loss on the other vehicles and the gain on it thus sheltered from taxes?

 

Dunno if it works in the UK, but this is a standard technique in the US. Time the sale to have some other losses and offset the gain so you have net investment income of zero.

[elef 0]

Again - I'm swedish and analyze tax treaties for scandinavian guys who want to move to other countries. Domicile is always important as if you don't have acquired a new domicile tax authorities will rule that you must pay taxes on your capital gains in your homeland. If you do visa runs in Thailand I recommend guys to get a residentship and a domicile in an other country - Philippines is maybe the best alternative but some guys move to Cambo or Malaysia.

 

Americans - if you live in some states claiming state taxes even after you emigrated you must first move to a state without such claims as such taxes is not exempted from taxation in the US tax treaties.

[Eneukman 1]

An idea that works in the US when things like this arise.

 

If you have some stock that has done well but that you don't want to endure the tax hit on, and you think it might be impervious to market declines, then simply wait for one. Sell some other mutual funds or stocks that DO decline -- and establish a capital loss. Then also pick that year as the year that you sell the item in question. Its gain should be cancelled by the loss on the other vehicles and the gain on it thus sheltered from taxes?

 

Dunno if it works in the UK, but this is a standard technique in the US. Time the sale to have some other losses and offset the gain so you have net investment income of zero.

The same principle works in the UK. My problem is that if I am liable to Capital Gains Tax on investments I bought AFTER leaving the UK and a certain company is taken over I will have a gain well in excess of £17,000 (and probably closer to £19,000) on that holding alone. I've also seen a reccomendation to sell a holding in another company which is presently showing a gain of £6,000. I can offset that by selling one holding at a loss of £8,000 giving a net gain, after allowing for my annual Capital Gains allowance of some £8,000/£9,000.

 

On the other hand, if I am not liable for Capital Gains Tax on investments bought after I left the UK, my potential gain wlll be somewhere in the order of £3,000/£4,000, which I can cope with.

 

Alan

[Bazle 1,500]

Question for all you tax experts:D

 

I left the UK in August of last year, told the Revenue and completed the appropriate form to say I now wanted to be treated as being non-resident.

 

I have a number of stock exchange investments and am aware that I remain liable for any Capital Gains Tax that may arise from the sale of those I held BEFORE I left the UK until 4 complete tax years have elapsed. There is a further proviso that would come into effect if I returned to the UK but as I have no intention of doing that, I can ignore that.

 

My question is - What is the Capital Gains Tax position regarding the investments I bought AFTER I left the UK but in the same tax year. Are they fully exempt from Capital Gains Tax (assuming I don't return to the UK)? Or do I need to be away from the UK for 4 full tax years?

 

Alan

Alan

 

If these were genuinely new acquisitions (e.g. not rolled over gains), you should be OK.

 

However, please note that your reference to 4 years should be to 5 years.

 

Am in Patters for the next few days. Would be happy to share a few beers with you if you wish to discuss. Perhaps you can then tell me where you get your investment advice!!

 

Cheers.

 

Bazle

[Eneukman 1]

Alan

 

If these were genuinely new acquisitions (e.g. not rolled over gains), you should be OK.

 

However, please note that your reference to 4 years should be to 5 years.

 

Am in Patters for the next few days.  Would be happy to share a few beers with you if you wish to discuss.  Perhaps you can then tell me where you get your investment advice!!

 

Cheers.

 

Bazle

Thanks for that, Bazle.

 

I'm sure I'd seen a reference to 4 years but I'll check the Revenue's web-site again in the next couple of days.

 

I did sell a number of investments but a large part of the proceeds from these were remitted to my Bangkok Bank account so the purchases were new acquisitions. The shares I bought were also totally different from those that I sold.

 

If the shares I bought after leaving the UK are exempt from CGT, that will make some investment decisions a lot easier Being a true Scot, I hate paying tax when I don't have to.

 

I take my advice from Investors Chronicle magazine. A subscription to the magazine allows me access to the subscribers' section of their web-site.

 

I'll be happy to meet up for a few beers at some point. I'll be in Catz on Thursday from about 9.30 or so to meet up with jambo and to try and forget that I'll be another year older.

 

Alan

Edited June 5, 2006 by Eneukman

[Owen` 2]

The same principle works in the UK. My problem is that if I am liable to Capital Gains Tax on investments I bought AFTER leaving the UK and a certain company is taken over I will have a gain well in excess of £17,000 (and probably closer to £19,000) on that holding alone. I've also seen a reccomendation to sell a holding in another company which is presently showing a gain of £6,000. I can offset that by selling one holding at a loss of £8,000 giving a net gain, after allowing for my annual Capital Gains allowance of some £8,000/£9,000.

 

I know this is mostly a UK tax question so I won't dig into this too deep.

 

If I understand this correctly you seem to have 17K pounds of gain in one stock and 6K pounds in another for a total potential gain of 23K. You have a loss in a 3rd stock of 8K.

 

You apparently have in your tax law something called a Cap Gains "allowance" and given the above arithmetic it must be 7-8K pounds to get to your final estimated taxable gain number of 8-9K above. (FYI no such allowance in the US. Gains are short term and taxed at standard salary rate, or long term and taxed generally at 15%. Long term means held for > 1 yr)

 

Okay, apparently also the 17K pounds stock might trigger as a taxable gain involuntarily, but the 6K pounds gain stock would be voluntary and you would sell it to respond to a recommendation.

 

For a price of . . . I'd guess one hundred some pounds you could buy whatever the UK equivalent is of a PUT option on the stock with the 6K gain. This would serve to lock in your gain and you could continue to hold that stock with no risk of loss.

 

You then have only 17K to deal with, but your tax loss and "allowance" would seem to cover most of that? The 6K stock could be postponed into the next year when presumably you have a new "allowance" to shelter its gain?

[Eneukman 1]

Not sure what a PUT option is.

 

In the UK, there is an annual exmption (currently, I think £8,800). Capital Gains Tax is payable on your TOTAL net gains for any one tax year. Therefore to calculate my liability, which naturally I am anxious to avoid, I need to total all the gains made in a tax year and then deduct any losses made. After that, if I still have a gain, I can then deduct the annual allowance. What is left is then added to your total gross income and then taxed at either 20% or if the gain takes you into the higher rate bracket at 40%. In addition, I think I can carry forward from previous years any losses that have not been offset against gains in any year. I need to check this as I may have a loss from the previous tax year that would be helpful to me.

 

However, if you are deemed to be non-resident you are exempt from Capital Gains Tax with the poviso that stocks held BEFORE you left the UK will continue to be liable for a certain period of time after leaving the UK. I am trying to ascertain whether investments I bought after leaving the UK but within a 4 or 5 year time scale are exempt or still liable to this tax.

 

Bazle seems to be suggesting that I'm not going to be liable on any gains made on the investments purchased after I left the UK, which is good news to me.

 

Alan

[bob2005 0]

Extracts from the Non-Residents E-Book at TaxCafe:

 

In order for an individual to avoid capital gains tax it is usually necessary to

remain non-resident for five complete tax years. Any gains on assets disposed

of during the period of non-residence will then escape UK capital gains tax

completely.

 

The rule only applies to assets held by the emigrant at the date of departure

from the UK. Assets purchased during a tax year of non-residence, are not

subject to UK capital gains tax, provided you are also non-resident during the tax

year they are sold. The requirement for five complete years of non-residence

does not come into play in these circumstances.

 

Gains accruing on a disposal of assets in the tax year of departure are subject to

capital gains tax even though the disposal may only occur after you have left the

UK. This is an important trap to avoid.

 

6. How to Avoid UK Inheritance Tax

 

The general rule is that an individual domiciled in the UK will be subject to

inheritance tax on his or her worldwide assets. Non-UK domiciled individuals are

only subject to UK inheritance tax on their UK assets.

In order to lose your UK domicile you will need to build up evidence to show that

you have abandoned your UK domicile of origin and have acquired a new domicile

of choice.

 

How to Lose Your UK Domicile

You should take as many of the following steps as possible in order to show

evidence of an intention to acquire a new domicile of choice:

• Take up nationality in the new country.

• Join clubs and other social organisations in the new country.

• Dispose of UK investments.

• Resign from clubs in the UK.

• Close UK bank accounts.

• Avoid subscriptions to British newspapers.

• Dispose of all UK private residences.

• Buy a new residence in the new country.

• Make a will under the laws of the new country.

• Build up a new circle of friends in the new country.

• Avoid retaining directorships in the UK.

• Exercise any vote in the new country.

It should be noted that none of the above factors is in itself conclusive. However,

Inland Revenue will look at all the factors that can be put in evidence to

determine whether there is a settled intention to reside permanently in the new

country.

Obtaining a non-UK domicile of choice does not protect you completely from UK

inheritance tax. You will still be liable to tax on your UK assets. If the value of

these assets is less than the the nil rate band (currently £255,000 for tax year

2003/2004) it is probably not worth taking any further action, unless you expect

your assets to rise significantly in value.

[Owen` 2]

Not sure what a PUT option is.

 

It's a derivative vehicle and possibly way outside your comfort zone -- unless this description reminds you of the UK equivalent with a different name.

 

CALL up and PUT down, like a telephone. A Call is purchasing the "right" to purchase shares at a pre-specified price for a period of time, at which point the right expires and becomes worthless. A Put is the opposite. It is purchasing the right to sell at a given price.

 

Puts are a form of portfolio insurance. If you have a stock with a gain and you fear it will decline, but for tax reasons (like yours) you do not wish to sell, you can lock in that gain by buying put options for the same number of shares that you hold. If the stock declines in value, you lose money on it. But if the stock declines in value, the right to sell (which you own, i.e., the put) at a higher price than exists currently suddenly has additional value and that piece of paper called a put option increases in price. You can sell it for more than you paid for it and get a gain equal to the loss in the stock. Net tax effect, zero for that particular transaction. It does nothing to the tax position in the stock itself.

 

Pretty common in the US, and because the options do expire (various time periods offered) the are a great way to lose money because you have to be right not just about direction of stock price, but also time frame.

 

Feel free to ignore this. You seem to have a plan of attack evolving already for your tax problem.

[elef 0]

You must also check the tax treaty between UK and Thailand.

[Eneukman 1]

The rule only applies to assets held by the emigrant at the date of departure

from the UK.

If I'm reading this correctly, Bob that means that the shares I bought in October 2005 (2 months after I left the UK) will be wholly exempt from CGT so long as I don't return to the UK to live. That will reduce my potential gain if Alliance & Leicester are taken over to somewhere between £3,000 & £4,000, which is covered by my annual exemption.

 

I did sell some shares in the last tax year after I left the UK but that was to reduce my holding in a company in which I have far too many shares. It also used up last year's annual exemption.

 

I am more aware than most people here of the complexities of domicile. I did once successfully claim American domicile for someone who still owned a house in the west of Scotland. I argued that it had been in the family for many years and that the deceased wanted the house to pass to his children. Everything else pointed to American domicile (his 2nd wife was Californian) and the Capital Taxes Office accepted the position.

 

Alan

[Eneukman 1]

It's a derivative vehicle and possibly way outside your comfort zone -- unless this description reminds you of the UK equivalent with a different name.

 

CALL up and PUT down, like a telephone. A Call is purchasing the "right" to purchase shares at a pre-specified price for a period of time, at which point the right expires and becomes worthless. A Put is the opposite. It is purchasing the right to sell at a given price.

 

Puts are a form of portfolio insurance. If you have a stock with a gain and you fear it will decline, but for tax reasons (like yours) you do not wish to sell, you can lock in that gain by buying put options for the same number of shares that you hold. If the stock declines in value, you lose money on it. But if the stock declines in value, the right to sell (which you own, i.e., the put) at a higher price than exists currently suddenly has additional value and that piece of paper called a put option increases in price. You can sell it for more than you paid for it and get a gain equal to the loss in the stock. Net tax effect, zero for that particular transaction. It does nothing to the tax position in the stock itself.

 

Pretty common in the US, and because the options do expire (various time periods offered) the are a great way to lose money because you have to be right not just about direction of stock price, but also time frame.

 

Feel free to ignore this. You seem to have a plan of attack evolving already for your tax problem.

Not sure whether such an investment vehicle exists in the UK. If it does, I somehow think that the government will have ensured that any gains made will be liable to tax!

 

Alan

[Eneukman 1]

You must also check the tax treaty between UK and Thailand.

elef, please don't make matters even more confusing than they are already.

 

I don't think Thailand has an equivalent to Capital Gains Tax - says he hopefully.

 

Alan

[Bazle 1,500]

If I'm reading this correctly, Bob that means that the shares I bought in October 2005 (2 months after I left the UK) will be wholly exempt from CGT so long as I don't return to the UK to live. That will reduce my potential gain if Alliance & Leicester are taken over to somewhere between £3,000 & £4,000, which is covered by my annual exemption.

 

I did sell some shares in the last tax year after I left the UK but that was to reduce my holding in a company in which I have far too many shares. It also used up last year's annual exemption.

 

I am more aware than most people here of the complexities of domicile. I did once successfully claim American domicile for someone who still owned a house in the west of Scotland. I argued that it had been in the family for many years and that the deceased wanted the house to pass to his children. Everything else pointed to American domicile (his 2nd wife was Californian) and the Capital Taxes Office accepted the position.

 

Alan

Alan

 

I think you might be misunderstanding the anti-avoidance legislation.

 

If you are caught by it (you return before the expiry of 5 complete tax years), any gains you make during your period of non-residence on assets owned pre-departure are treated as if made in the year of return.

 

The annual exemption for the year of return is relevant, but you don't get any further exemptions for non-resident years.

 

Maybe see you Thursday.

 

Cheers.

 

Bazle

[Eneukman 1]

Alan

 

I think you might be misunderstanding the anti-avoidance legislation.

 

If you are caught by it (you return before the expiry of 5 complete tax years), any gains you make during your period of non-residence on assets owned pre-departure are treated as if made in the year of return.

 

The annual exemption for the year of return is relevant, but you don't get any further exemptions for non-resident years.

 

Maybe see you Thursday.

 

Cheers.

 

Bazle

OK Bazle, I think I understand now.

 

I can sell everything I owned BEFORE I left the UK at any time and make a substantial gain and so long as I don't return to the UK within 5 complete tax years, I won't be liable to CGT. If I do return within that period, I'll be in deep shit as I will almost certainly have a massive liability - taxed at 40%!!!!

 

Anything I bought AFTER leaving the UK can be sold at any time without having to worry about CGT unless I still own the shares on my return to the UK (hopefully never. )

 

If the above is correct, I'm extremely relaxed about everything as it makes some upcoming investment decisions one hell of a lot simpler. All I need to do is to avoid returning to the UK until after 6th April 2011.

 

Alan

Edited June 6, 2006 by Eneukman

[WelshFarang 0]

Not sure whether such an investment vehicle exists in the UK. If it does, I somehow think that the government will have ensured that any gains made will be liable to tax!

 

Alan

They do exist. Companies use them as ''hedging'' tools (insurance). Traded options are similar to futures, but with a definite maximum loss. I had a go with traded options and got my fingers burnt.

 

Profits on options are taxable.

 

Options are highly geared so a downward movement in price will give a big profit on your contract. Your initial outlay will be small compared to having to buy the stock outright.

[bob2005 0]

Eneukman, I'm pretty confident you know more about this subject than I do, I read the info but it always seems to leave a few grey areas. I've found emails to the Non-residents Centre of the HM Customs and Excise people very helpful. Also I have a top accountant (I hope he is) to advise me, but he's expensive. My income is comfortable for this end of the world but it wouldn't be in England - fortunately I like living this end, England is no longer for me.

[Bazle 1,500]

Anything I bought AFTER leaving the UK can be sold at any time without having to worry about CGT unless I still own the shares on my return to the UK (hopefully never. )

Everything you have said is correct, with one small caveat re the above. If you do return prematurely, you could be caught on disposals in the tax year of return made prior to the date of return.

[Eneukman 1]

They do exist. Companies use them as ''hedging'' tools (insurance). Traded options are similar to futures, but with a definite maximum loss. I had a go with traded options and got my fingers burnt.

 

Profits on options are taxable.

 

Options are highly geared so a downward movement in price will give a big profit on your contract. Your initial outlay will be small compared to having to buy the stock outright.

That did occur to me but I think I'll stay clear of them until I get time to study them and fully understand the consequences of them. Too easy to lose money otherwise.

 

One guy in the condo here is really into gold in a big way and reckons that the price is going to keep going up for some time to come.

 

Alan

[Eneukman 1]

Everything you have said is correct, with one small caveat re the above. If you do return prematurely, you could be caught on disposals in the tax year of return made prior to the date of return.

Thanks, Bazle.

 

The one point that was confusing me on the Revenue's web-site was their reference to being "temporarily" non-resident, but nothing about being permanently non-resident. Having just acquired broadband, I've downloaded one of their booklets which gives the missing explanation - "You are "temporarily" non-resident if you have been neither resident nor ordinarily resident in the UK for fewer than 5 complete tax years."

 

The stock that has a £6,000 gain (probably going down fast ) is due to go "xd" at the end of the month so I think I'll hold off selling it until then to ensure I get the next dividend.

 

Alan

[Owen` 2]

The stock that has a £6,000 gain (probably going down fast rolleyes.gif ) is due to go "xd" at the end of the month so I think I'll hold off selling it until then to ensure I get the next dividend.

 

Trying to lay low in this thread because it is so UK tax law centric, but tax specifics of elsewhere are always interesting because they sometimes reveal strategies not invented for the US because of some tax law quirk -- that could change.

 

Re: ex-dividend. You no doubt know that the stock price is adjusted downward for first trade of the day by the amount of the dividend. This is largely camouflaged by subsequent trading, but it does happen. More to the point, in the US . . . until recently dividends were taxed at a different rate than LT Cap Gains. There were dividend capture strategies that were tried sometimes, but for taxable money they would run afoul of this reality. Such things unwisely traded higher tax income for lower tax income.

 

Just a thought . . . .

 

(BTW, I remain envious of this annual capital gains exclusion y'all have. We yanks pay tax on every penny.)

Edited June 7, 2006 by Owen`

[WelshFarang 0]

Just a thought . . . .

 

(BTW, I remain envious of this annual capital gains exclusion y'all have. We yanks pay tax on every penny.)

Maybe, but we get taxed at 40% on all capital gains above the £8k threshold. This includes property (but not one's place of residence). Sorry to go off-topic, but I bought a flat 5 years ago for £70k and now it is worth £200k. If I sell now, my tax bill will be in the region of £45k.