Part 4 of 4
This is the Finance Act 2023 version of this article. It is relevant for candidates sitting the ATX-UK exam in the period 1 June 2024 to 31 March 2025. Candidates sitting ATX-UK after 31 March 2025 should refer to the Finance Act 2024 version of this article (to be published on the ACCA website in 2025).
So far we have looked at the income tax (IT) aspects of overseas income in some detail. In this final part of the article we are going to look at capital gains tax (CGT) and inheritance tax (IHT).
The key factor in determining an individual’s liability to UK CGT is tax residence. Domicile is only relevant where a UK tax resident individual has realised gains on the disposal of overseas assets. Figure 6 sets out the liability of an individual to UK CGT on both UK and overseas assets.
Figure 6 – Liability to UK CGT
Note the following:
but not on any other assets.
The rules for temporary non-UK tax residents were introduced in order to prevent individuals avoiding UK CGT by going abroad for a relatively short period of time, becoming non-UK tax resident and then selling assets outside the scope of UK CGT. The rules apply to individuals:
Gains made on assets owned at the time of leaving the UK, but sold whilst the individual is outside of the UK, remain subject to UK CGT. Gains on assets purchased after leaving the UK and sold whilst the individual is outside of the UK are NOT subject to UK CGT.
EXAMPLE 2 – Bosun
Bosun has always been UK tax resident and domiciled. On 1 June 2022 he left the UK and became non-UK tax resident. His intention was to remain outside of the UK for four years. In 2024/25 Bosun sold some shares (acquired in 2016), and a painting (acquired in 2024).
Bosun’s liability to UK CGT following his departure from the UK is as follows:
Domicile status is the key factor in determining an individual’s liability to UK IHT on overseas assets. Overseas assets are only subject to UK IHT if the individual is either domiciled or deemed domiciled in the UK.
In addition to the deemed domicile rules reviewed earlier, which are relevant for IT and CGT, you need to be aware of the additional rules whereby an individual can be deemed to be domiciled for the purposes of IHT.
Long term tax residents and individuals born in the UK with a UK domicile of origin may be deemed domiciled for the purposes of IT and CGT. They will also be deemed domiciled for the purposes of IHT if they satisfy certain additional rules
In addition, an individual who ceases to be domiciled in the UK is deemed domiciled in the UK for the next three years for the purposes of IHT.
An individual who is liable to UK IT on worldwide income may find that income arising in respect of overseas assets is taxable in two countries – the UK, and the country in which the income arises. A similar situation may arise in respect of CGT or IHT. Relief may be available via either a double tax treaty or double tax relief.
A double tax treaty, between the UK and the country in which the income arises, will set out how double taxation is to be avoided or minimised. The treaty could state that the income will only be taxed in one of the countries concerned (for example, the country in which the income arises). Alternatively, it could impose a maximum rate of tax in one of the countries.
UK double tax relief is available where there is no treaty or where an element of double taxation occurs, despite the existence of a treaty. It is available in respect of all sources of overseas income including employment income. It is also available in respect of CGT and IHT. Overseas tax suffered, up to a maximum of the UK tax on the overseas income (or transaction, subject to CGT or IHT), is deducted from the UK tax liability.
International travellers add an extra dimension to exam questions because their liability to UK taxes changes as they move to, or from, the UK. When answering a question that includes an international traveller:
Written by a member of the ATX-UK examining team
The comments in this article do not amount to advice on a particular matter and should not be taken as such. No reliance should be placed on the content of this article as the basis of any decision. The authors and the ACCA expressly disclaim all liability to any person in respect of any indirect, incidental, consequential or other damages relating to the use of this article.