The government is to introduce new rules governing when capital gains tax (CGT) payments must be made to HMRC in respect of exit charges in a bid minimise cash flow problems when companies relocate with the EU
Currently exit charges can arise on unrealised gains when trust ceases to be resident in the UK or when assets cease to be used in a trade carried on through a branch or agency in the UK.
Under proposed legislation, in certain circumstances payment of these charges can be deferred.
In a statement, the Treasury said: 'This measure is designed to benefit UK resident trusts with trading activities; or non-UK residents who trade through a branch or agency in the UK who have decided to move to another European Union (EU) or European Economic Area (EEA) member state and have incurred an exit charge as a result. It does this by allowing them to defer payment of that charge. This minimises the relative cash flow disadvantage when compared to a similar entity remaining in the UK.’
Current law is contained in sections 25 and 80 Taxation of Chargeable Gains Act (TCGA) 1992 which say that where a non-UK resident individual with a branch in the UK moves assets outside the UK or ceases to trade in the UK or a UK resident trust moves its residence out of the UK; a charge arises on any unrealised gains on assets held by those persons, under the Taxes Management Act (TMA) 1970 the charge is payable by the 31 January following the tax year in which the charge arose.
Under the new laws, the existing exit charge rules will be retained. However, legislation will be introduced in Finance Bill 2018-19 offering certain trusts or non-UK resident individuals who satisfy certain tests the option of deferring the payment and paying it over 6 years in equal instalments. The amounts deferred will be subject to interest. That legislation will be found in a new Schedule 3ZAA TMA.
The exit charge will be deferred where at the time the charge arose:
- a non-resident individual has a right to freedom of establishment in another EU or EEA member state and has transferred assets subject to the charge that are used in or for the purposes of a trade, or used or held for the purposes of a branch or agency
- a trust became resident of, and established in, another member state of the EU or EEA, and the assets subject to the charge were used immediately before and after the change of residence/establishment for an economically significant activity.
Report by Rob Munro
