Cessation of South African residency: A critical analysis of juridical double taxation on United Kingdom immovable property held by natural persons

Abstract

When a natural person ceases to be resident, there is a deemed disposal of worldwide assets, and a capital gain must be calculated. Taxation levied because of a change in residence is referred to as an exit tax. In this context, juridical double taxation could arise if the assets are taxed in both the previous and the new state of residence.

South Africa has a convention for the avoidance of double taxation and the prevention of fiscal evasion with the United Kingdom (SA‒UK DTA). Article 21 of the SA‒UK DTA contains the Elimination of Double Taxation provisions. South Africa provides relief from juridical double taxation in terms of section 6quat of the Income Tax Act. However, these measures may not always provide relief for exit taxes.

A qualitative research approach was followed, in the form of a literature review. Secondary data were collected and analysed to determine if Article 21 and/or section 6quat provide for the elimination of this juridical double taxation. Where neither Article 21 nor section 6quat provide relief, the research aimed to establish whether any other procedure could provide relief.

The findings suggest that Article 21 does not provide for the elimination of this juridical double taxation. Furthermore, section 6quat would only in certain instances provide relief. Should neither Article 21 nor section 6quat provide relief, the mutual agreement procedure (MAP) could be considered for resolving this juridical double taxation. However, while the MAP is satisfactory in theory, it has a number of practical limitations.

Keywords:

• juridical double taxation
• exit taxes
• section 6quat
• SA–UK DTA
• elimination of double taxation
• MAP

Acknowledgements

This manuscript was derived from the research assignment presented in partial fulfilment of the requirements for the degree of Master of Accounting (Taxation) in the Faculty of Economic and Management Sciences at Stellenbosch University, under the supervision of Maryke Wiesener.

Disclosure statement

No potential conflict of interest was reported by the authors.