Shareholders in non-resident companies

Produced by Tolley

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-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 permanent establishment, 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-resident company, there are anti-avoidance provisions 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 as appropriate, 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 Calculation of corporate capital gains guidance note.

The main difficulty in spotting these arrangements in practice is knowing whether your client has shares in a non-resident company (as they 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 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-resident company 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.

Note that the legislation on gains of non-resident companies attributed to UK

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