REV BN 26: Chargeable Gains: Location Of Assets Etc

Who is likely to be affected?

1. Those likely to be affected are:

• individuals who are resident or ordinarily resident, but not domiciled, in the UK; and
• persons neither resident nor ordinarily resident in the UK who are carrying on a trade, profession or vocation through a branch, agency or permanent establishment in the UK.

General description of the measure

2. The main effect of the new measure will be to amend the statutory provisions which determine where certain assets are located for the purposes of tax on chargeable gains. In some cases the new rules will provide that assets (broadly, ones which are related to the UK, such as bearer shares in UK companies, but which may in certain circumstances be regarded as located outside the UK under current law) are treated as being located in the UK for such purposes. The measure also makes some minor changes to provisions which apply where a non-resident company is carrying on a trade in the UK through a permanent establishment in the UK.

Operative date

3. The main amendments to the rules will have effect to determine whether, at any time falling on or after today, any assets affected by the changes are located in the UK at the time concerned. In certain cases, the revised rules will determine where assets of a particular description are located at any such time. The minor changes also take effect from today, as described in paragraph 9 below.

Current law and proposed revisions

Main changes

4. In most circumstances, a person resident or ordinarily resident in the UK who realises a chargeable gain on disposing of an asset is liable to UK tax on the gain regardless of where the asset is situated. Special rules apply, however:

• where an individual is resident or ordinarily resident, but not domiciled, in the UK. Such a person does not incur any liability to UK tax in relation to chargeable gains arising to him or her on disposals of assets situated outside the UK unless amounts in respect of such gains are received in the UK; and
• where a person is neither resident nor ordinarily resident in the UK, but carries on a trade, profession or vocation in the UK through a branch or agency or permanent establishment. A UK tax liability arises on, for example, any chargeable gains the person realises on disposals of assets situated in the UK which were used for the purposes of the trade before the time the gain arose.

5. Section 275 of the Taxation of Chargeable Gains Act 1992 (TCGA) provides rules which determine the location of certain assets for the purposes of that Act. These determine, for example, that registered shares and securities are generally situated where the register is situated (or where the principal register is situated, if there is more than one). This is subject to the proviso that shares or securities issued by a municipal or governmental authority, or by a body created by any such authority, are situated in the country of the authority in question. But the rules in section 275 do not provide a comprehensive code for determining the location of all types of asset for TCGA purposes. Where section 275 has no effect,
the location is determined by common law.

6. In some circumstances, people have taken advantage of the absence of a specific rule to secure that the asset they dispose of is not treated as being situated in the UK for TCGA purposes, even where it derives most, or all, of its value from the UK. For example, it may be possible for a UK-resident but non-UK domiciled individual to arrange for a disposal of bearer shares in a UK company to take place outside the UK. Under common law the shares disposed of will be situated where the bearer instrument is present at the time of the disposal.

7. The new measure will provide specific rules for certain assets which are not currently within the scope of section 275. The changes will have effect to provide that:

• all shares in, and debentures of, companies incorporated in the UK, whether registered or not, will be treated as situated in the UK, subject to the proviso mentioned at paragraph 5 above relating to municipal or governmental authorities;
• the scope of the existing rules in section 275 which apply in relation to securities will be extended so that they apply in relation to debentures – this means, for example, that, subject to the proviso relating to municipal or governmental authorities, all registered debentures (rather than just those which are securities) of a company which is not incorporated in the UK will be treated as being situated where they are registered or, if there is more than one register, where the principal register is situated;
• membership rights in a company which has no share capital will be treated in the same way as shares and debentures;
• any question as to where, for TCGA purposes, assets which are rights under the law of a territory outside the UK that correspond to patents, trade marks or registered designs are located, or whether licences or other rights in respect of such corresponding rights are situated in the UK, will be determined in the same way as the corresponding question is determined in relation to patents, trade marks and registered designs;
• any question as to whether, for TCGA purposes, assets which are rights under the law of a territory outside the UK that correspond to copyright, design rights, or franchises are situated in the UK, or whether licences or other rights in respect of such corresponding rights are so situated, will be determined in the same way as the corresponding question is determined in relation to copyright, design rights and franchises;
• any intangible asset falling within the description which follows whose location is not otherwise determined by a specific TCGA rule will be treated as situated in the UK at all times for TCGA purposes if it is subject to UK law at the time of its creation. For this purpose, an “intangible asset” is a thing in action (such as a contract or a right to sue) or other intangible or incorporeal property, or anything which under the law of a country or territory outside the United Kingdom corresponds to, or is similar to, a thing in action or other such property. And such an asset is subject to UK law at any time when any right or interest which comprises the asset or forms part of it is governed by, or otherwise subject to, or enforceable under, the law of any part of the UK;
• any such intangible assets that are options or futures which are not subject to UK law at the time of their creation will be treated as situated in the UK at all times if they can be satisfied (wholly or in part) by delivery of an asset which is situated in the UK, or if any part of the underlying subject matter is shares in, or debentures of, a company incorporated in the UK which are yet to be issued. This rule will have effect to “look through” any number of options or futures which are not subject to UK law to an underlying subject matter which includes, or comprises, something other than an option or future which is not subject to UK law. The rule will not apply, however, in relation to options or futures which can be settled only in cash (such as financial futures over the FTSE 100 index), rather than by delivery of any underlying subject matter; and
• where an asset whose location is determined by a TCGA provision is co-owned by two or more persons (whether jointly or in common), the location for TCGA purposes of the interest in that asset which is held by a co-owner will be the same as the location of the asset would be if that person were to own it wholly. The question as to whether such an interest in an asset is situated in the United Kingdom for TCGA purposes will be determined in the same way.

8. The changes will have a knock-on effect in relation to those provisions of the accrued income scheme (AIS) which use the rules in section 275 to determine whether securities are situated in the UK for their purposes. The provisions in question appear in sections 715 and 723 of the Income and Corporation Taxes Act 1988. These sections ensure that the AIS does not apply to a non-resident (unless trading in the UK through a branch of agency) in respect of securities situated in the UK, and allow relief from a charge where the proceeds from a transfer of securities situated outside the UK cannot be remitted to the UK because of the laws of the territory in which those securities are situated.

Minor changes

9. The measure also updates some statutory cross-references in the TCGA in certain provisions which apply where a non-resident company trades through a permanent establishment in the UK. The amendments make some consequential changes which were overlooked when section 10B, which makes provision in such cases, was introduced in the Finance Act 2003 to replace section 10(3). To be specific:

• the reference to “section 10” in the rules relating to losses in section 16(3) is to be replaced by “section 10 or 10B” with effect for accounting periods ending on or after today; and
• the references to “section 10(3)” in the rules relating to groups of companies in section 179A(12) and in the substantial shareholdings rules in paragraph 3(2) of Schedule 7AC are to be changed to “section 10B” with effect from today.

Further advice

10. If you have any questions about these changes, please contact your local Inland Revenue Enquiry Office: see the Telephone Directory for details. Colin Weston on 020 7147 2764 or

• Colin Weston

will deal with more detailed enquiries. Information about Budget measures is available on the Inland Revenue website.

  Home Top | Menu