How You Can Legally Avoid UK Capital Gains Tax

Summary: Find out how non UK residents can avoid UK capital gains taxation on any gains accrued from the disposal of UK assets.

If you are non UK resident for five complete and consecutive tax years you can generally avoid UK capital gains taxation, or CGT as it is also known, on any gains accrued from UK assets ‘disposed of’ (i.e., sold or put into trust etc.,) during those five years.

This rule applies to you if, prior to the year of your departure from the UK, you were actually UK resident for four out of the seven tax years previously.

If you fall outside of this rule as you’ve been UK non resident for quite a few years but are now UK resident again, you can still avoid UK CGT by becoming non UK resident and non UK ordinary resident for the full tax year in which you stand to make UK capital gains. 

To do this you could work overseas for the whole tax year on a full time employment contract for example. 

You then need to remain non UK resident for at least five more complete tax years.  Any gains you accrue during the first five complete tax years of your non UK residence should then be 100% free from UK CGT.

If you have to become a UK resident again during this five year ‘golden period’ the taxation of gains on assets ‘disposed of’ during the time you have actually been away will be back-taxed based on the level of taxation in the year the gain was made.

Unfortunately this five year rule isn’t as ‘golden’ as it first appears though. 

Why? 

Because of those lovely double taxation treaties!

Capital Gains Tax and Double Taxation Treaties

The UK has established over 100 double taxation agreements and nearly all of these actually give the country in which you reside full capital gains taxation rights. 

The only exceptions to this being on gains accrued on land, property or assets used in a permanent establishment e.g., your home.

So, you can avoid UK capital gains tax but can you still avoid taxation on your gains in your new country of residence? 

Don’t worry - all is not lost at this point! 

Some countries do have very favourable capital gains treatment...so all you have to do is take up residence in such a country!

Capital Gains Tax Rate Examples

Australia 48.5%
Belgium 0%
Canada 23.5%
France 26%
Germany 0%
Hong Kong 0%
Italy 12.5% or 27%
Netherlands 0%
Singapore 0%
Sweden 30%
United States 15%

If you are aware that you are about to become liable for capital gains tax, speak to an international taxation adviser to find out whether there are ways you can reduce or negate your liability.

After all, it is your right to legally reduce your taxation liability!

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