Expats with UK Homes Lose CGT Tax Relief


A tax loophole allowing British expats and other overseas investors with buy to let homes in the UK to escape capital gains tax will close following Chancellor George Osborne’s Autumn Budget Statement 2013.

The clock is ticking for anyone hoping to sell residential letting properties.

From April 2015, they must pay the same level of capital gains tax as UK property investors when selling homes.

Taxpayers in Britain pay capital gains tax at two rates – 18% on a chargeable gain for basic rate taxpayers and 28% for higher rate taxpayers.

“A consultation on the best way of making this scheme work will start in April 2014,” the Chancellor told MPs during his statement.

Unfair to taxpayers

“It’s unfair that investors in the UK should pay this tax and those from overseas should escape without paying anything.”

Residential property investors at home and overseas will also lose the right to claim a 36-month exemption on capital gains tax.

Private Residence Relief allows property owners who sell a residential property that was once their main home.

The aim of the relief was to give homeowners a chance to sell their home before capital gains tax became due.

This relief will change to just 18 months from April 2014.

Providing the seller has lived in the property as their main home at some time, the full 18 month exemption applies. If the home has never been the seller’s main home, the relief cannot be claimed.

This rule change will particularly hit expats who have let out their former home in the UK and moved overseas.

How the tax may work

They will have the 18 month time limit on selling their home without capital gains tax coming due on the sale – but the tax is only paid on the period they have not lived in the property and lettings relief also applies to reduce the bill.

The Chancellor made no comment about any changes to lettings relief.

For example, the capital gains tax calculation is expected to work like this:

  • Selling price – the amount the buyer pays or open market value if the sale is to a relative or connected person at less than market value
  • Less buying and selling costs – these include legal fees, stamp duty and estate agent fees
  • Less the cost of improvements – any capital costs, like the cost of an extension or loft conversion but not repairs or refurbishment expenses
  • Less lettings relief

The figure will leave a chargeable gain on which capital gains tax is paid at 18%, although the Chancellor is rumoured to be considering a non-resident rate of 20%.

Expats will not receive the annual exempt amount as an allowance against capital gains tax as they are non-resident.

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