There are a few countries around the world who apply an ‘exit charge (i.e. a tax departing residents that works as described by your client). The UK doesn’t apply an exit charge to individuals nor do we treat the assets of individuals taking up residence in the UK as if they’d been immediately acquired at their market value on entry into the country. So, if your client wants to sell assets now in preparation for his move to the US, he will have to use the normal base cost (being the value of the properties when he acquired them, not when he departed from South Africa). Hence, some of the amount on which he would pay CGT, has already been subjected to tax in South Africa.
The UK’s legislation for double taxation situations (S.18 TIOPA 2010) requires that any credit for overseas tax comes either by treaty between the two countries (‘double taxation arrangements’) or under the rules provided by our own statutes (‘unilateral relief arrangements’). The treaty between the UK and South Africa does not provide for tax on disposals deemed to happen on exit. Turning to unilateral relief, we find that Rule #1 (see S.9 TIOPA) requires that to get credit for the tax levied in South Africa, the UK must be taxing the same gain. Hence, it appears that neither route provides relief for the South African tax.
However, as noted by HMRC (INTM169040), the Inland Revenue’s SP6/88 clarifies that the tax authority regards the same gain is being taxed where “overseas tax is payable by reference to increases in the value of assets although there has been no disposal and there is a subsequent disposal attracting UK liability.” Therefore, in accordance with this statement of practice, your client is allowed a credit against his CGT.
Of course, a move by him to the US before disposing of UK investment properties would introduce several further complexities. The UK would normally tax only the gain on UK properties rebased to their market value on 5 April 2015 (residential) or 5 April 2019 (commercial). Being written about 25 years before CGT was extended to non-residents, the SP would not have envisaged this situation and so its applicability is made doubtful. Moreover, the gains in South Africa and UK might not overlap at all now, depending on when he left South Africa. However, the issue may be less significant now because the US would be able to tax the gain on his disposals. He would need to get advice on the calculation of US tax and how the US tax authority allows for a crediting of CGT charged by the UK.
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