Election for foreign losses

If you are non-UK domiciled but tax resident here, you can claim the remittance basis of assessment for your foreign income and gains. Where you make a capital gains tax (CGT) loss on foreign assets you can obtain relief against your gains taxable in the UK by making a special election.

Domicile and remiitance basis

If you are UK resident for tax purposes, but not domiciled or deemed domiciled in the UK, the availability of relief for foreign losses depends on whether you are being taxed on your foreign income and gains when they arise or only when they are remitted to the UK.

If you have elected to be taxed on the remittance basis you cannot use foreign capital losses against your gains taxable in the UK. However, you can make a different election to obtain relief for them. The election affects the way all your capital losses are relieved, and can mean UK losses have to be offset against foreign gains before UK ones. This will not always be advantageous, for example where there are taxable UK gains but only unremitted foreign gains.

Once made an election is irrevocable. You therefore need to think very carefully about whether to make it.

If you don’t make an election, then you will never be able to relieve foreign losses whilst you remain non-UK domiciled and are taxed on the remittance basis. When considering whether to make the election, it is therefore essential to consider the probability that you will be making large losses overseas.

Effect of an election

If an election is made, you have to offset all of your losses (UK or overseas) in the following way:

• first, against foreign gains arising in that tax year that are remitted in the tax year (or the UK part of a split year)
• next, against unremitted gains arising in that tax year
• finally, against other gains, i.e. UK gains.

This strict ordering remains in force even if you switch to the arising basis in a later year.

If an election is made, and UK losses are offset against unremitted gains, you can remit those gains in a subsequent year without it being a taxable remittance. This can make up for the fact that the UK losses weren’t used against UK gains, and therefore that UK CGT had to be paid.

An election must be made for the first year that you claim the remittance basis (the relevant tax year), or the opportunity will be permanently lost. You can make an election for a tax year up to four years after it ends.

Example. Marco (a non-dom) moves to the UK in 2022/23. He claims the remittance basis and is unsure of whether to make an election in respect of foreign losses. If he decides to make an election it must reachHMRC no later than until 5 April 2027.