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Green, green grass

12 January 2006
Issue: 4040 / Categories: Forum & Feedback
Returning expatriates often ask for tax advice shortly before (or after) they return, when it is generally too late to take advantage of their non-resident status. They will be resident from the beginning of the tax year of return, so any gains realised just before coming home will be chargeable in the year of arrival. Split-year treatment is available by ESC D2 for people coming to the UK for the first time, or coming back after at least five years of absence; but cannot be used for tax avoidance.

Let us say that my client is coming home to the UK in two weeks after ten years away and has an investment property. ESC D2 would surely apply if the property was sold before return but that is not practical because it is too late to make an arm's length sale to a third party. Could a settlor-interested trust be set up and the property given to that? This would certainly trigger a disposal and the gain would under the ESC not be chargeable. The settlor would be chargeable on the trustees' gains but those would be measured — on a future disposal — from the entry into the trust not from the original purchase.
To me this seems to work; but the question is whether HMRC would see this as the sort of tax avoidance that would entitle them not to...

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