Do You Own UK Property? Changes To Capital Gains Tax For Non-Residents

Do you own property in the UK? If you do, and are not resident there, you need to be aware of changes to capital gains tax from 6th April.

Do you own property in the UK? If you do, and are not resident there, you need to be aware of changes to capital gains tax from 6th April.

Many British expatriates continue to own property in the UK. Whereas some intend to own it long-term for their eventual return, others have investment property, or are waiting until they settle into their new life abroad before selling up on the UK. If you expect to sell a UK property in the future, while still a non-UK resident, then the gain will be liable to tax.

Rules up to 5th April

UK residents pay capital gains tax at 18% or 28%, depending on their income tax bracket, when they sell a property. There is an allowance of £11,000 per individual.

Principal private residence relief is given to the main home. If you have occupied the property as your main home for the full period of ownership, the full gain is exempt from tax. There is a ‘grace period’ of 18 months, which are considered deemed occupation if the property had previously been your main home. Prior to April 2014 it was 36 months.

If you are non-UK resident (and you need to be very sure about this, the rules are complex and catch many people out), any assets you sold in the UK were free from capital gains tax – provided you remain non-UK resident for five complete and consecutive UK tax years.

The gains are also likely to be taxable in your country of residence, depending on the local rules, so you need to understand how any double tax treaty works.

Rules from 6th April

From 6th April 2015, non-residents selling UK property will start to be taxed on the gains. This is regardless of how long you have lived outside the UK, and will apply even if you never return.

The new tax will only apply to property; gains arising on other UK assets will not be caught by the provision.

The capital gains tax rate will the same as that paid by UK residents, so either 18% or 28%, depending on whether your UK source income fits into the basic or higher rate tax bracket.

The annual allowance for individuals increases to £11,100.

There are different rates and allowances for companies and trusts.

In most cases you can choose whether to rebase the value of your property to 5th April 2015, or time-apportion the gain. You could also compute the gain over the whole period of ownership.

These new rules only apply to residential property, which is any property that is suitable for use as a dwelling, regardless of whether anyone is residing in it or not. This includes residential property owned as an investment and also sales of interest in ‘off-plan’ properties.

You can now choose to apply the principal private residence relief to a property if you have resided in it for at least 90 days over the UK tax year.

This would mean you avoid tax on the gain, but it may also mean that you become UK resident for tax purposes under the UK’s Statutory Residence Test, depending on the other ties you have and amount of time spent there, and this would make you liable to tax in the UK on your worldwide income.

UK residents will also be able to apply the relief to a property they own overseas, if they spend 90 days in it.

Where tax is also due in your country of residence, you need to understand the interaction of the UK and local tax regimes under the double taxation treaty. Take professional advice to establish what your tax liabilities are and where, and what you can do to minimise them. A wealth manager would also discuss your options for your UK property and whether you should retain it or consider selling it to avoid a higher tax bill in future.

6 March 2015

Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; an individual is advised to seek personalised advice.