I have a client that wants to financially emigrate. He however has a property in the UK that he is renting out and the proceeds of that are being declared annually in the UK. On date of emigration will there be a deemed disposal for CGT purposes on the UK
Important:
This answer is based on tax law for the year ending 28 February 2020.
Answer:
It is our understanding that the term ‘financial emigration’ is the process whereby a South African resident changes their status with the Reserve bank to a non-resident. The RSA Reserve Bank guide refers to ‘individuals regarded as residents by the Financial Surveillance Department who are leaving South Africa to take up permanent residence in any country outside the CMA’ – paragraph 4.1. Paragraph 4 of the guide deals with the process to be followed in this regard. It is not a tax related issue and best referred to an authorised dealer.
From a tax point of view, if not having formally left South Africa, i.e. emigrated or no longer ordinarily resident in the RSA, the tie breaker clause of the relevant treaty, will have to be considered. In this instance it is possible that the individual was already someone who was deemed exclusively to be a resident of the United Kingdom. If so, the individual ceased being a resident (for tax purposes at that time) and had to inform SARS of the change. If not, the person will cease being a resident when he or she ceases to be ordinarily resident in the RSA – emigration.
You are correct that, from a South African perspective, the person is, on the date that he or she ceases to be a resident of the RSA, deemed to have disposed of his or her assets – in this instance, the property in the United Kingdom.
The double tax agreement will indeed be relevant here, but both countries have a right to tax a capital gain. That will of course only be when the property is actually disposed of (the going forward comment that you made). We don’t comment on foreign tax legislation, but submit that the deemed disposal, on ceasing to be a resident of the RSA, may not be a tax event in the UK. If it is, a tax credit will be available.