Shareholders in non-resident companies

By Tolley

The following Personal Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Shareholders in non-resident companies
  • Conditions
  • Attribution of gains and losses
  • Company pays the tax on the attributed gain
  • Relief for tax paid by the participator on an attributed gain
  • Application to non-domiciled individuals

Usually, non-resident companies are chargeable only on gains from the disposal of trading assets situated in the UK where a trade is carried on in the UK via a branch or agency. The exception is where the assets are UK residential property that may be taxable under the annual tax on enveloped dwellings (ATED) related capital gains tax charge or the non-resident capital gains tax (NRCGT) rules. See the Overview of the ATED regime guidance note (subscription sensitive) and the Capital gains tax charge on UK residential property owned by non-residents guidance note.

As there could be scope for a UK resident taxpayer to avoid capital gains tax on disposals by holding his personal assets within a non-resident company, an anti-avoidance provision was introduced to attribute gains made by the non-resident company to UK resident shareholders in proportion to their shareholding in the non-resident company. This applies provided the conditions discussed below are met.

It is the gain that is attributed to the UK resident shareholder, not the disposal; the gain must be calculated using the rules for UK companies (ie using indexation allowance, etc) and the relevant proportion of the gain is attributed to the shareholder. For details of how to calculate the gain within the company, see the Corporate chargeable gains guidance note (subscription sensitive).

The main difficulty in spotting these arrangements in practice is knowing whether your client has shares in a non-resident company (as he may not receive dividends) and knowing enough about the non-resident company and its activities to apply the rules. Hopefully, this should be covered by your ‘know your client’ take-on procedures and ongoing client relationship. If your client does have a shareholding of over 25% (10% for disposals prior to 6 April 2012) in such a company, he needs to be aware of these

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