Shareholders in non-resident companies

By Tolley
Shareholders in non-resident companies

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
  • Interaction with the temporary non-residence rules

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, or on the gains arising on the disposal of UK land.

TCGA 1992, s 2B (from 6 April 2019); TCGA 1992, ss 2(1), 10(1), 10B(1) (up to 5 April 2019)

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, 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.

TCGA 1992, s 3G(3) (from 6 April 2019); TCGA 1992, s 13(11A) (up to 5 April 2019)

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

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