Prior to 17th March 1998, people could go abroad, sometimes for little more than a tax year and not be liable to capital gains tax on disposals made between departure and the following 5th April and during a complete year of non-residence. Not surprisingly, the UK Revenue Authorities took a dim view of this and sought to close this perceived loophole in 1998.

Temporarily non-resident rules were introduced to ensure individuals going abroad for relatively short periods could no longer avoid capital gains tax. These rules affect anyone leaving the UK on or after 17th March 1998 or returning to the UK on or after 6th April 1998.

To stand any chance of being exempt from capital gains tax an individual must be both not resident and not ordinarily resident in the UK. This is usually achieved by working full-time abroad under a contract of employment lasting for at least a complete tax year or by living outside the UK for a period of at least three years. In both instances, strict rules for UK visits must not be broken.

If an individual is resident or ordinarily resident in the UK but not domiciled here, a gain on the sale of an overseas asset will only be taxable in the UK if any of the proceeds are remitted here. In practice, only a proportion of the remittance will be treated as a gain.

If you manage to become not resident and not ordinarily resident in the UK, further conditions will still have to be satisfied, depending upon when the sale takes place.

Sales made between the date of departure and the following 5th April

You will normally still be charged to UK capital gains tax on gains realised between your departure and the following 5th April. Gains in this period will only be exempt if you were not resident and not ordinarily resident in the UK for the whole of at least 4 out of 7 tax years prior to the tax year of departure.

Sales made during complete years of non-residence

Provided you will be not resident and not ordinarily resident in the UK for at least 5 complete tax years, gains made during those complete years of non residence will be exempt. The exemption will also apply for shorter periods of non residence if you were not resident and not ordinarily resident in the UK for the whole of at least 4 out of 7 tax years prior to the tax year of departure.

Becoming non resident can create a capital gains tax liability in some circumstances, for example, where capital gains were previously "held over" on an occasion when you were given shares in or assets of a business

Sales made in the tax year of return to or arrival in the UK

Provided, when you come to the UK, you have been not resident and not ordinarily resident here throughout the whole of the previous 5 tax years, you will not be liable to capital gains tax on disposals made prior to your arrival. However, once you become resident you will be potentially liable to Capital Gains Tax. Furthermore, you will be potentially liable for the whole tax year of arrival if you were resident or ordinarily resident in any of the 5 previous tax years.

There are further, less restrictive, rules in certain situations for assets acquired after becoming not resident and not ordinarily resident which are then sold in a complete year of non-residence. Also it is always necessary to consider the terms of any Double Taxation Agreement between the UK and your country of residence. However, these aspects are beyond the scope of this article.

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