CG26230 - Arrival in and departure from UK: temporary non-residence: gains or losses excluded from scope of section 10A - year of departure 2012-13 or earlier
An individual may acquire assets after leaving the UK in a period of temporary residence abroad. If such assets are disposed of during the period of temporary non-residence, during an intervening year (see CG26155) any gains or losses on such assets are, in general, excluded from the scope of Section 10A, but see CG26240 which tells you about the exceptions to this general rule.
TCGA92/S10A(3)(a)
Section 10A(3)(a) provides that a gain or loss on an asset that was acquired after departure from the UK in either the tax year of departure or any of the intervening tax years when the taxpayer was not resident or not ordinarily resident* shall not be treated as chargeable in the tax year of return.
If the asset was acquired at a time when the taxpayer was resident or ordinarily resident* in the UK but was Treaty non-resident, any gain on that asset may fall within the scope of S10A. (This is only likely to apply to acquisitions after the date of departure up to the next 5 April).
You should note that the general exclusion of gains on assets acquired and disposed of during temporary non residence applies only to gains and losses which would otherwise be chargeable or allowable by virtue of TCGA92/S10A. Such gains or losses can only accrue in an intervening year.
Where assets are acquired after the date of departure and disposed of in the year of departure or year of return while the individual is not resident and not ordinarily resident the gains will be chargeable under TCGA92/S2 unless the concessionary treatment under ESCD2 is available to the individual, see CG26300+.
* For 2013-14 and later years ordinary residence does not need to be considered.
Example 1
Mr Smith, who has lived all his life in the UK, leaves the UK on 10 July 2008 for a four year contract of employment abroad.
He resumes tax residence in the UK on 15 August 2012.
On 8 May 2009 Mr Smith buys 20,000 shares in a UK Company. He sells all of the shares on 10 January 2011, realising a gain of £12,000.
Mr Smith fulfils all of the conditions for Section 10A to apply, see CG26156, but because the shares were acquired after his departure from the UK the gain is not treated as chargeable in the year of return.
There may be occasions when shares are acquired overseas and they must be added to a pool of existing shares.
A pool of shares may contain shares whose disposal would otherwise fall outside of the scope of Section 10A. There is no statutory rule for identifying which shares have been disposed of for the purposes of section 10A, so the allocation shown in the return should be accepted provided adequate records are kept by the taxpayer so that the identification of later disposals is consistent with what has gone before.
Whilst the taxpayer can decide which shares may have been disposed of, the shares are still subject to the normal pooling rules with the gain on the shares disposed of that would be outside of the scope of s10A being determined on a proportionate basis. In particular, the makeup of the pool isn’t altered to allow the shares to be identified to specific costs.
Example 2
A taxpayer owns 200 shares.
Year 1 - He leaves the UK
Year 2 - Whilst abroad he acquires 200 shares.
Year 3 - Whilst abroad he sells 100 shares.
Year 4 - He returns to the UK and later in the year purchases a further 100 shares.
Year 5 - He goes abroad again and sells 200 shares.
Year 6 - He finally returns to the UK where he remains.
When looking at the section 104 pool, on the first disposal in year 3 he has sold 100 of the 400 held at that time and on the disposal in year 5 he has sold 200 of the 400 held at that time. The computations of any gain or loss arising would be made in the normal way.
The taxpayer could decide that the sale in year 3 should be regarded as the disposal of 100 of the shares that were acquired when overseas in year 2. This would mean that any gain would not be caught by section 10A. If this was done, on the second sale in year 5 only 100 of the 200 shares could then be regarded as having been acquired while overseas so half of the gain from year 5 would be caught by section 10A and would be charged in year 6.