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With all the noise around the UK pension reforms this year, it is easy to forget that there was another big change affecting expatriates who own property in the UK – they now have to pay UK capital gains tax when they sell UK property.
With all the noise around the UK pension reforms this year it is easy to forget that there was another big change affecting expatriates who own property in the UK, and those in Britain planning a move overseas. British expatriates now have to pay capital gains tax in the UK when they sell UK property.
Who is taxed?
Until 6 April 2015, if you were non-UK resident for five consecutive UK tax years, you were not taxed in the UK on the gains made when you sold UK property. Now, if you are one of the many UK expatriates who owns property in the UK, you will have to pay tax there if you sell it.
The new rules apply to non-UK resident individuals, non-resident partners in UK resident and UK non-resident partnerships, companies and trusts. They apply no matter how long you have lived outside the UK and even if you never intend to go back.
What is taxed?
The new tax only applies when you sell UK-based residential property, which is defined as “property used or suitable for use as a dwelling”, regardless of whether anyone is living in it or not. This includes:
You only have to pay tax on gains arising from 6th April 2015. In most cases you can choose whether to rebase the value of your property to 5th April 2015, or time-apportion the gain. You also have the option of computing the gain over the whole period of your ownership.
What is the charge?
The tax charge is the same as that paid by UK residents. The net gain on your UK property is added to any other UK-source income you have and taxed at 18% or 28%, depending on whether your UK income puts you in the basic or higher-rate tax bracket. Companies pay tax at 20%, or 28% if it falls within the Annual Tax on Enveloped Dwellings (ATED). It is also 28% for trusts.
What reliefs are there?
Individuals and partnerships have an annual allowance of £11,100 and trustees £5,550 (for 2015/16).
Over and above this, under UK law, if you meet the conditions for private residence relief (PRR), you do not have to pay capital gains tax on your main home. Both non-residents selling UK residential property and UK residents selling residential property abroad may still be able to get this relief as a non-UK resident if they meet new qualifying conditions.
You can apply PRR to a property if you have lived in it for 90 days or more over the UK tax year. If you own more than one property in a country, the 90 days can also be spread over the properties. If you are UK resident, you can also apply the relief to a property you own overseas, if you spend 90 days in it.
Conversely, if you live outside the UK and spend 90 days in a property you own in the UK, you can nominate this as your principal residence. Although this allows you to avoid capital gains tax, you may be seen as UK resident for tax purposes under the UK’s Statutory Residence Test.
This means you would have to pay tax in the UK on your worldwide income. You therefore need to seek specialist advice to consider your tax situation as a whole.
Remember that tax is also likely to be due in your country of residence, so you need to look at the double tax treaty between the UK and that country to determine where you will pay tax and how much. Tax involving two countries can be complicated so you should always seek professional advice to make sure you get the solution that works best for your situation and objectives.
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.
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; individuals should seek personalised advice.
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