The British government is closing a tax loophole for overseas residents who will pay capital gains tax for the first from April 6, 2015 when they sell a home in the UK.
Until that date, many buy to let portfolio owners had an exit strategy from their business by moving abroad to release the cash in their homes without paying capital gains tax (CGT) – while landlords in the UK continued to do so.
Following Budget 2015, HM Revenue and Customs (HMRC) has published some answers to frequently asked questions.
Here is a pick of the responses that will affect most expats:
How much capital gains tax will expats pay?
CGT is only due on gains in property value from April 6, 2015. Any gains that have been banked by property owners up to April 5, 2015 will remain tax-free.
Are the rules the same for individuals and companies?
No. Homes owned by companies – affected by the Annual Tax on Enveloped Dwellings (ATED) – are subject to CGT regardless of the tax residency of the individuals or company involved in the transaction
How is the chargeable gain calculated?
Property values are rebased on April 6, 2015. Instead of putting in the purchases price, the open market value on April 6, 2015 is used to calculate any chargeable gain.
How do sellers find the rebased value?
Surveyors will provide a valuation. CGT home values were last rebased in March 29182, and they are often asked for valuations for that date, so although rebasing is rare, it is not the first time properties have gone through the process.
Another option is sharing the gain on a time basis up to April 6, 2015 and then for after that time.
Apportionment may give a different result from rebasing, so it’s best to work out the figures for both and go with the one with the most favourable tax result.
What if HMRC does not agree with the figures?
HMRC may check the CGT valuation on a tax return with surveyors in the government’s Valuation Office. Because they follow the same valuation procedure as other surveyors the results should be similar.
Can I claim private residence relief (PRR)?
Yes – but only for a period after April 6, 2015 based on the new occupancy test. The test is met if you or another joint owner stays in the home for at least 90 nights during a tax year. If you both stay, that counts as one night. If the property is owned for less than a year, the 90 nights rule reduces.
The qualifying test does not count in years where an owner is UK tax resident.
If principle residence relief applies, do other CGT reliefs apply as well?
Yes, if the property is rented out, then lettings relief is also allowed – and so are special reliefs for moving abroad to work and taking accommodation tied to a job.
Don’t forget to claim any costs incurred in acquiring, selling or improving the home as well as any costs related to defending the title, like paying lawyers in boundary disputes.
What about the PRR exempt period?
Under private residence relief rules, owners also gain an 18 month CGT exemption. That means they pay no CGT for the last 18 months they own a property, so effectively, non-residents who can claim PRR pay no CGT before October 5, 2017 regardless of the new rules.
What is the CGT tax rate for non-residents?
CGT is payable at the same rate as that for UK residents – 18% for those with a total income including chargeable gains of up to £42,385 for the 2016-7 tax year and 28% for those earning more.
When is the CGT paid?
Within 30 days of completing the disposal.
How is the tax paid?
By completing and filing a Form NRCGT within the 30-day limit. If a taxpayer is already in the UK self-assessment system, the tax can be paid at the time of filing or by January 31 following the end of the tax year.
What if the home is sold at a loss?
The loss rolls forward and can be offset against other losses incurred against selling homes in the UK while the owner is non-resident.
Will I still pay CGT in the country where I live and in the UK?
Most sellers will be protected against paying tax twice on the same gain by double taxation treaties in force between Britain and many other countries. Property owners should take local advice on this before disposing of a home in the UK.
Where can I find more information?
Find out more about the new capital gains tax rules for non-residents and claiming CGT reliefs on the HMRC web site.
Thanks for the informative post. Planning to use time-apportionment option but don’t have any of the receipts for improvements when property was initially purchased 15 years ago. Can you please advise. Thanks