The complex rules for capital gains tax relief for non-domiciled individuals (non-doms) aren’t new, although significant proposed changes have been announced to the non-dom regime in the March 2024 Budget, with further detail awaited on certain aspects.
However, until the proposed new rules are implemented on 6 April 2025, taxpayers who have claimed the remittance basis in recent years may have to make a significant decision.
Taxpayers who haven’t made a claim for the remittance basis for any tax year from 2008/09 onwards are eligible to claim capital gains tax relief for foreign losses. However, once a claim for the remittance basis has been made, foreign losses are ineligible for UK capital gains tax relief unless an election is made under s16ZA TCGA 1992 (a “foreign capital loss election”).
The election must be made within four years from the end of the tax year of the first remittance basis claim. For example, for taxpayers who made a first remittance basis claim in the 2019/20 tax year, the deadline is 5 April 2024.
The capital loss election is irrevocable, and once in place, statutory loss relief ordering rules determine how the losses are relieved. If the decision is ignored or missed and no election is made, relief for foreign losses is lost until the individual becomes domiciled or deemed domiciled in the future. This eventuality may foreseeably never happen for many non-doms.
Q: If I don’t make the election I won’t get relief for my losses, so surely I should make the election?
A: Well, it depends. There can be downsides depending on your circumstances as the losses are then offset in a particular order.
In the absence of a foreign capital loss election, UK capital losses can be relieved against gains of the same tax year in the most beneficial way for the taxpayer. If the foreign capital loss election is made, this flexibility is lost, and statutory loss relief ordering rules determine how foreign losses are relieved. All capital losses must be relieved in the following order:
As you can see, the potential downside is that you could have a scenario where you suffer a UK capital loss which is then offset against unremitted foreign gains, rather than UK gains. This could lead to a higher tax charge for the year in question.
The election also brings significant practical implications too. The loss relief calculations are an additional administrative burden for taxpayers and professional advisors, and a greater detail of disclosure of gains and losses must be made to HMRC.
The tax and practical effects of the statutory loss relief ordering rules can be significantly different for each taxpayer so it’s important that professional advice is sought. The decision requires assessing the likelihood of future events and so can only ever be made on a best endeavours basis.
Some of the factors to consider when deciding to make the election may include:
Tax planning can be complex and overwhelming. If you need assistance regarding any of the topics discussed above, please reach out to one of our Tax Partners, Phil Moss (philmoss@lubbockfine.co.uk) or David Portman (davidportman@lubbockfine.co.uk)
