Property tax changes can undermine financial planning for British expats who have moved but still own a home in the UK.
Chancellor George Osborne has worked hard to increase the tax burden of landlords in recent years – and he didn’t forget expats in his masterplan to raise more cash for the Treasury.
In many cases, expats will pay more tax on the sale of a home than homeowners in the UK.
Here are the pitfalls to watch for:
Capital Gains Tax on selling
Until April 2015, landlords and second home owners could move overseas and be classed non-resident for tax. This allowed them to sell the property they hold as individuals in the UK without paying capital gains tax (CGT) on the profits.
New rules demand expats now pay CGT – at the same enhanced rates of 18% and 28% as buy to let landlords but only on any gain from April 6, 2015.
However, expats cannot offset any capital expenses incurred before that date to minimise their tax bill.
More tax for companies
If a company owns a home in the UK, the government will demand extra tax every year based on the value – starting at £500,000 the tax is 33,500
No discount for a main home
Expats no longer qualify for principle residence relief that exempts then from CGT on a property they have lived in as a main home. The rules are not worded that way but do say expats can only claim private residence relief if they are tax resident in the country where the property is located or where an expat owner spends 90 nights
Extra stamp duty
Expats pay the enhanced stamp duty which adds 3% to their tax rates when buying a second home or buy to let in the UK. Companies also pay extra stamp duty – with a top rate of 15% for homes worth more than £1.5 million
The Chancellor also has other tax changes in the pipeline for expat homeowners and landlords.
For instance, expat landlords paying income tax at 40% or higher will see mortgage interest relief cut in half over the next three years and non-resident home owners, including companies, will pay inheritance tax on homes on par with a UK property owner.
