Realising Capital Gains via UK companies: a planning point

UK companies realising capital gains are taxed at the nominal rate of UK corporation tax (20%) unless the gain is from UK residential property within the Annual Tax on Enveloped Dwellings (ATED) regime in which case the ATED related capital gains tax rate of 28% applies (this would be unusual).

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Where the company is a nominee or bare trustee for a non-UK-resident person, UK tax charges will not normally apply to the UK company but may (since 6/4/2015) apply to the non-UK resident person (often referred to as the "principal" of the "nominee" company).


Example 1    :   UK nominee company

 

Comment

An appropriate agreement must be prepared between the UK nominee company and the beneficial owner of the asset. The beneficial owner of the asset may or may not be the beneficial owner of the UK company, but nothing turns on this. 

Under UK tax law (s60 TCGA 1992) the gain is treated as belonging to the beneficial owner, and not to the UK nominee company.

If the beneficial owner is a non-UK-resident offshore company or individual, then in the example above UK tax can apply to the capital gains received by the nominee company on behalf of the non-UK-resident beneficial owner, if the assets are UK residential property. Otherwise, in the example given, no UK tax is applicable assuming no UK trade. If the third-party principal is UK resident and domiciled, then s60 TCGA 1992 requires the principal to declare any capital gains for UK tax purposes. If the third party principal is non-UK domiciled, the third-party principal may be able to claim the remittance basis and so avoid UK taxation if the asset is situated outside the UK.

Example 2   :   Substantial shareholder exemption

The gains of the UK holding company are free of UK corporation tax provided the conditions of the statutory tax exemption (known as the substantial shareholder exemption) are met. The main conditions in this example are that the UK company must have held the shares of the foreign subsidiary for at least 12 months and that the UK company is a member of a trading group.  

The UK's substantial shareholder exemption applies equally to gains realised from the disposal of UK subsidiaries.

In the above example, the UK holding company may need to be wound up or dissolved as soon as reasonably practicable after the gain has been realised in order to claim its tax exemption as immediately after the disposal, it will no longer be a member of a trading group (a requirement of the tax exemption rules). Although this means that prima facie the gain is not exempt (because the UK company's trading status has been lost), the rapid winding-up of the UK company will maintain tax-exempt status for the gain under a subsidiary exemption rule.

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