Capital Gains Tax Changes for Expat Property Owners
Rules relating to the payment of CGT by non-resident UK property owners will change in April and expats will be affected.
Significantly sneaky draft legislation was published last week that will affect the way capital gains tax (CGT) is charged on the sale of UK property assets owed by expats. It is due to come into effect from April 6th 2015, and it is expected that the vast majority of expat property owners could be affected. The worst-case scenario is that expat property owners will lose up to 28% of their property profits.
From April 2015 capital gains tax will be payable by all expats and non-UK residents on any gains made from sales of British residential property. Obviously buy-to-let property and holiday homes, which are rented out, will fall within this new CGT regime. It will also affect British expats who hold an empty British property that they were hoping to sell at some point to perhaps fund an overseas home purchase.
If you sell before April the 6th 2015 the old rules still apply. What’s worth mentioning is the fact that Principal Private Residence (PPR) relief could still be available or partially available for some. Under Principal Private Residence relief UK residents living in the property in question who then sold it would be exempt from paying any CGT, as it is not payable on one’s main home. (Unless you’re Boris Johnson and have duel UK/US citizenship…) So affected expats could choose to return to the UK, reside in the home and then sell it. However, it’s not quite that simple.
In theory UK expats holding UK property could decide to continue holding it until they return to the UK, live in it and then sell claiming exemption from CGT because it is, or was, their main home. But the amount of time you spend in the property counts.
For example, if you want to claim PPR relief but remain an expat you have to have spent at least 90 days in the property for each year when you are not UK resident – this can be split between spouses if the home is in joint names – otherwise you run the risk of encountering income tax troubles.
But other than some fortunate retirees, who has such a flexible life that they can do this?
If you want to rent out the home until you return to the UK and then reclaim it as your principal residence before selling it, you will only be eligible for partial PPR according to my understanding of the capital gains tax rules – but I am NOT a tax expert!
However, reading the HMRC CGT guidelines they do make it relatively clear:
“If you have not always lived in your home, other than allowed periods of absence, multiply the total gain by a fraction equal to the period you actually lived in the dwelling house plus any allowed periods of absence plus any part of the final 36 months not covered by actual occupation or allowed period of absence, divided by the period of ownership. That part of the gain will be exempt.”
It may be possible for you to utilise a trust or a QNUPS (Qualifying Non UK Pension Scheme) and move property ownership accordingly if you want to legitimately avoid capital gains tax. But the bottom line is this – you can sell before April the 6th to avoid the new legislation otherwise you will be affected, and you need to seek qualified advice before making any decisions at all.
This article does not constitute advice.
