Temporary Non-Residents
Amendments will be made to close loopholes in the capital gains tax regime governing temporary non-residence (TCGA 1992, s 10A). The law is tightened in two main areas.

• Those who are resident or ordinarily resident in the UK and simultaneously resident for tax treaty purposes in a territory outside the UK (‘Treaty non-resident’) will be treated as neither resident nor ordinarily resident in the UK (although this will not affect the operation of provisions attributing gains of offshore companies or trusts to UK-based individuals). Without this change the regime is ineffective because the individual never ceases to be resident or ordinarily resident in the UK.
• Where a liability arises in a territory outside the UK under a double taxation agreement, this will not prevent a charge arising on return to the UK (although relief will be available for any foreign tax paid). This prevents an advantage being gained by realising assets in a low-tax jurisdiction.
  

These provisions will have effect where the tax year of departure (or deemed non-residence under the new legislation) is 2005/06. They will also have effect if the year of departure (or deemed non-residence) is 2004/05 provided there is a time between 16 March and 5 April 2005 when the individual is resident or ordinarily resident in the UK and not simultaneously resident in a territory outside the UK.

The opportunity is taken to make other, more minor, changes to TCGA 1992, s 10A.

Location of Assets
An anti-avoidance measure, which takes effect from 16 March 2005, will mean that certain assets are treated as being located in the UK for capital gains purposes.
The measure is intended to prevent avoidance by individuals who are resident or ordinarily resident, but not domiciled, in the UK and persons carrying on a trade, profession or vocation, via a branch, agency or permanent establishment in the UK though neither resident nor ordinarily resident.
The following specific location rules will apply.

• Registered debentures of a company not incorporated in the UK will be treated as situated where the register is situated and membership rights in a company with no share capital will be treated in the same way.
• Whether intellectual property rights under the law of a territory outside the UK are situated in the UK will be determined in the same way as for equivalent UK intellectual property rights.
• Certain intangible assets will be treated as situated in the UK at all times if subject to UK law at the time of creation.
• Intangible assets that are options or futures not subject to UK law at the time of their creation will be treated as situated in the UK at all times if they can be satisfied by delivery of an asset situated in the UK, or if any part of the underlying subject matter is shares in, or debentures of, a company incorporated in the UK which are yet to be issued.
• The location for capital gains purposes of a person’s interest in an asset jointly owned by two or more persons will be determined as if it were wholly owned by that person.
  The changes will have a knock-on effect in relation to the provisions of the accrued income scheme which use the capital gains provisions to determine whether securities are located in the UK.

Trustees’ Change of Residence
Amendments will be made to the capital gains tax regime for trusts in order to prevent the use of double taxation agreements to reduce UK exposure. The new legislation will apply where trustees are, at different times within the same tax year:

• resident or ordinarily resident in the UK and not also resident for tax treaty purposes in a territory outside the UK (i.e. not Treaty non-resident); and
• resident or ordinarily resident in the UK but Treaty non-resident, or neither resident nor ordinarily resident in the UK.
  

The effect of the new legislation will be to ensure that any Double Taxation Agreement may not prevent a charge to UK capital gains tax in any year in which the above residence circumstances apply. There will be appropriate credit for any foreign tax suffered.

The new measure applies to disposals of settled property after 15 March 2005.