Temporary non-residence - the anti-avoidance rules

16 December 2021

Michael Flaherty and Nigel Giles in our Guildford and London offices authored “Temporary non-residence - the anti-avoidance rules”, published by Tax Journal on 3 December 2021.

The temporary non residence (TNR) anti-avoidance rules prevent a formerly UK-resident individual taxpayer from taking advantage of a short period of non-residence to realise income or gains outside the UK and, as a result, escape UK taxation on the receipt. These rules are most commonly seen in the context of capital gains tax, but they also have application to certain receipts subject to income tax. The scenarios are wide-ranging and include, for example, close company distributions, chargeable event gains and lump sum pension distributions.

The relevant provisions apply if the taxpayer has been UK-resident in at least four of the seven years prior to the date of departure from the UK, and becomes UK-resident again within five years of that date.

Capital gains arising during the period of TNR are caught by the legislation. Subject to certain exceptions, the legislation covers all gains on UK or overseas assets held at the date of departure that are realised during the period of TNR, including attributed gains under TCGA 1992, s.3 (formerly s.13).

Receipts subject to income tax that are caught by the TNR rules include certain pension-related lump sum payments, chargeable event gains on life assurance policies arising on encashment of life policies (except where the encashment is caused by the death of the life assured), offshore income gains realised during the TNR period (and taxable as income under the non-reporting fund rules), and payments from close companies to “material participators”.

The article includes sections on:

  • The purpose and development of the temporary non-residence rules
  • When the TNR rules apply
  • Capital gains tax
    • Scope of the legislation
    • How the rules operate
    • Other points to be aware of
  • Remittance Basis – capital gains and income tax
  • Income Tax
    • Pension drawdowns and other pension-related benefits
    • Gains taxed as income
    • Close company distributions

For further information, or for assistance, please contact Michael Flaherty or Nigel Giles.