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MARK McLAUGHLIN ATII, ATT, TEP, consultant, and MICHAEL DAWSON MA, FCA, ATII,
principal, of Forbes Dawson explain a planning point involving the interaction
between non-residence and rollover relief.
TIME HAS MOVED on since 'Arthur's Good Result' (Taxation, 5 September 2002 at
page 622) where we told the story of Arthur's brief and unsuccessful foray into
the secondhand car trade.
Arthur could not resist the lure of the used car trade, and eventually bought
another used car showroom business. Despite setting out on this venture with the
MARK McLAUGHLIN ATII, ATT, TEP, consultant, and MICHAEL DAWSON MA, FCA, ATII,
principal, of Forbes Dawson explain a planning point involving the interaction
between non-residence and rollover relief.
TIME HAS MOVED on since 'Arthur's Good Result' (Taxation, 5 September 2002 at
page 622) where we told the story of Arthur's brief and unsuccessful foray into
the secondhand car trade.
Arthur could not resist the lure of the used car trade, and eventually bought
another used car showroom business. Despite setting out on this venture with the
best of intentions, he soon acquired a reputation for 'knocking out dodgy
motors' (or selling motor vehicles of questionable origin or mechanical
condition).
Perhaps not surprisingly, Arthur concluded that a period of absence from the
United Kingdom might be in his best interests, to avoid having his 'collar felt'
(i.e. unwanted interest in his affairs by the police).
Consequently, after a year or two Arthur decided to sell the car showroom and
retire to Canada to join his nephew Terry, who had moved there. However, two
years after emigrating, Arthur discovered that retirement was not really to his
liking (particularly since this meant having to spend more time with ''er
indoors'). So he reinvested the proceeds from the car showroom in acquiring a
used car sales business in Canada.
Arthur had paid a substantial capital gains tax liability from the sale of his
business in the United Kingdom, on the basis that no further rollover relief
opportunities would arise following his retirement. He asks whether he can now
roll over the gain from the sale of the United Kingdom car showroom into the
Canadian business assets - a property, plus related goodwill.
Rollover for non-residents
Certainly, as far as the rollover relief conditions are concerned, Arthur has
reinvested the sale proceeds from the United Kingdom business in new qualifying
assets within the statutory period of three years following the disposal
(section 152(3), Taxation of Chargeable Gains Act 1992), and the businesses are
deemed to be carried on 'successively' (Statement of Practice 8/81). However, he
was resident and ordinarily resident in the United Kingdom when the original car
showroom was sold, but had become non-resident by the time the Canadian car
showroom was acquired, so what is the position regarding a rollover relief claim
in these circumstances?
There are provisions to restrict the availability of rollover relief for
non-residents, which are aimed at trades carried on through a branch or agency
in the United Kingdom, broadly allowing rollover relief only if the replacement
assets are chargeable assets of the trader, or if the claimant becomes resident
or ordinarily resident in the United Kingdom (but not dual resident) when the
new assets are acquired.
These provisions are contained in section 159 of the Taxation of Chargeable
Gains Act 1992, but the key point (in subsection (1)) is that the gains to be
rolled over must also arise in respect of 'chargeable assets'. These are defined
in subsection (4) as an asset in relation to which any gain on disposal would
give rise to liability under section 10 of the Act. Section 10, it will be
recalled, deals with gains of non-residents with United Kingdom branch or
agency.
However, Arthur was a United Kingdom resident (and ordinarily resident) when the
original business was sold, and the original car showroom business was not a
branch or agency.
A person who is resident or ordinarily resident in the United Kingdom can claim
rollover relief on the disposal of qualifying assets against the acquisition of
new qualifying assets, wherever they are situated. This is confirmed in the
Revenue's Capital Gains Manual (at paragraph 60253), which states that rollover
relief should not be denied where a person has ceased to be resident or
ordinarily resident in the United Kingdom when the new qualifying assets are
acquired, if the other relief conditions are satisfied.
Good news and better news
Enthused by this news, Arthur resolves to bring his tax affairs up to date with
a vigour never before encountered by his long-suffering accountant. The fact
that a rollover relief claim would increase the original capital gain for United
Kingdom purposes (due to a loss of business asset taper relief) fails to dampen
his spirits. After all, the Canadian tax authorities will not be concerned about
the extent of any United Kingdom gains he has rolled over!
When Arthur gets his tax repayment he drinks a toast to his friends in The
Winchester and to 'Dear Old England'.
