BIM70610 - Business changes: changes in scale, nature or location of trade: changes in residence status

For years to which the current year basis of assessment rules apply, ICTA88/S110A (SAT1/184) provides that:

• an individual not in partnership,
• who is carrying on a trade wholly or partly outside the UK,
• who becomes or ceases to be UK resident,

is deemed to have permanently discontinued the trade and commenced a new one. Tax is charged as though the change in resident status:

• constituted a permanent discontinuance of the business,
• immediately followed (when the business is, in fact, continued by the individual) by the setting up and commencement of a new one.

Despite the cessation and recommencement treatment, any losses incurred before the change can be carried forward under ICTA88/S385 and set against profits of the same business.

As there is no provision in the Taxes Acts for splitting a tax year in relation to residence, the deemed cessation and recommencement should strictly take place at the start of the tax year in which the taxpayer became resident in the UK or the end of the tax year in which the taxpayer ceased to be resident. But under ESC/A11, the business is treated as ceasing and recommencing on the actual date of arrival or departure if the taxpayer so chooses and the conditions of the ESC are met.

This rule does not apply to individuals carrying on a trade in partnership, but there are instead special provisions on how non-resident partners are taxed on their share of partnership profits (ITH1664).

A copy of the guidance relating to pre-SA years can be obtained from CT&VAT (Technical).