Shareholders in non-resident companies

Produced by Tolley
Shareholders in non-resident companies

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

  • Shareholders in non-resident companies
  • Conditions
  • What if the non-resident company is part of a non-resident group?
  • Exceptions to the charge
  • Attribution of gains and losses
  • Losses
  • Reporting
  • Company pays the tax on the attributed gain
  • Relief for tax paid by the participator on an attributed gain
  • Company distributes profit
  • More...

Usually, non-residentcompanies 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, or on the gains arising on the disposal of UK land.

As there could be scope for a UK resident taxpayer to avoid UK capital gains tax (CGT) on disposals by holding their personal assets within a non-residentcompany, there are anti-avoidance provisions to attribute gains made by the non-residentcompany to UK resident shareholders in proportion to their shareholding in the non-residentcompany. 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 ― overview guidance note.

The main difficulty in spotting these arrangements in practice is knowing whether your client has shares in a non-residentcompany (as they may not receive dividends) and knowing enough about the non-residentcompany 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 has a shareholding of over 25% in such a company, they need to be aware of these rules and ask the management board of the non-residentcompany for details of transactions each tax year. You also need to find out whether there was any tax avoidance motive in the disposal, acquisition or holding of the asset as disposals of assets which did not form part of a scheme or arrangement for the avoidance of tax (ie held for genuine commercial purposes) are not caught by TCGA 1992, s 3.

A number of amendments have been made to this legislation in recent years,

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