Capital Gains Tax changes for expatriates and overseas buyers brings the UK in line with other global property markets
The UK government published draft legislation that detailed changes to Capital Gains Tax (CGT) on the sale of properties for overseas and expatriate investors. This brings changes for the UK in line with other property markets and aligns overseas and expatriate property investors the same as UK resident home-owners.
From 6 April 2015, non-resident UK property investors will be charged on gains made from the sale of their property of between 18% and 28%, this is the same rate as resident home-owners in the UK. The UK government has deemed any UK property owner who spends less than 90 nights in their property to be a non-resident investor and CGT will also be charged on off-plan properties. Other key points arising from the draft legislation are provided below.
The changes mean that non-resident UK property owners will need to consider obtaining a valuation of their property. We work with a number of valuers to assist you in obtaining a recent valuation should you need one.
If you need to clarify any points relating to the changes to the CGT legislation, we advise property investors using expat mortgages to seek tax advice from a UK tax specialist with knowledge in this area.
Who will be affected by this new legislation?
From 6 April 2015, CGT will be imposed on disposals of residential UK property by non-resident individuals, trustees, estates and close companies.
Off-plan properties will also be treated as fully completed residential properties, so if a non-resident individual re-sells a property before the completion of a project then they will be liable to CGT on any gains arising after 6 April 2015.
The government has not extended the CGT charge to non-resident institutional investors disposing of shares or units in a collective investment scheme, provided they are ‘diversely held’ and not a mere vehicle used by private individuals to avoid the new tax. Non-resident institutional investors will be subject to a ‘narrowly controlled company’ test and a and a ‘genuine diversity of ownership’ test to ensure individuals are not transferring their interest in UK residential property to a non-resident company in order to escape the tax.
What is the rate of CGT for individuals?
The tax rate for non-resident individuals will be the same as the rates applicable to UK resident individuals. Using today’s tax banding’s, gains under around £32,000 will be liable for 18% charge and any additional gain will attract a charge at 28%.
Non-resident individuals from most countries will also be able to use the annual exemption, currently £11,000, to reduce the CGT payable.
In the unlikely event that a non-resident individual’s property is worth less on 6 April 2015 than was originally paid for the property, the non-resident owners can elect that the gain is calculated using the original base cost.
What is the rate of CGT for companies?
The tax rate for non-resident companies who dispose of residential UK property will be the same as the UK corporation tax rate, which is currently 20%.
Non-resident companies will also benefit from the associated allowances which come with corporation tax.
Can I claim relief using the principal private residence (PPR) exemption?
Non-resident owners of UK properties will be able to claim the same PPR relief as UK taxpayers, so long as they have resided in the property for at least 90 nights that year.
This new 90-night measure will came into effect on 6 April 2015.
What is the reporting procedure?
Where the non-resident individual or company already submits tax returns to HMRC, the reporting of the gain and payment of any tax can be made as part of the self-assessment tax return.
Otherwise, delivery of a return and payment of any outstanding tax must be made within 30 days of the disposal.