Tax for expats selling a UK home

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If you own a home in the UK but are tax resident in another country, capital gains tax may be due when you sell.

But watch out because the rules are changing and if you are not careful about timing the sale, you could face paying a bigger tax bill than necessary. And even if you have no tax on the sale, you must tell the British tax authorities about the transaction within 30 days of your lawyers completing the deal.

As a non-resident individual selling a home in the UK, tax is only paid on gains made since April 6, 2015, and some tax relief may reduce the  bill. If a non-resident company owns the property a different set of tax rules apply. Read on to find out how the current rules affect expats selling a UK home and how they change in 2020.

How CGT rules are changing

The British government has gradually widened the scope of taxing non-residents who own land or property in the UK.

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The last big change was in April 2015, when all sales of UK residential property because subject to capital gains tax (CGT).

Some of the rules were changed again in April 2019, but part of the scheduled upgrade was delayed until April 2020.

CGT from April 6,  2019

These are the changes that were introduced from April 6, 2019:

  • CGT is applied to direct disposals of UK property by non-residents
  • Non-resident companies switched from paying income tax to Corporation Tax on gains
  • Non-residents must tell HM Revenue & Customs of any property disposal in the UK within 30 days of completing the deal.
  • A non-resident CGT return should be filed even if the sale is at a loss or no tax is due.

Don’t forget expats only pay CGT on the gain in value of a residential property since April 6, 2015.

That means they must have a valuation of the property on that date to go with any tax filing to prove the benchmark value for CGT.

CGT from April 6, 2020

These are the changes that were introduced from April 6, 2019:

  • Non-resident companies switch from paying income tax to Corporation Tax on property-related income, such as rents. The change means tax bills should reduce as income tax rates are 20% at the basic rate and 40% at the higher rate. However, Corporation Tax is charged at 17% from April 1, 2020.
  • Companies must register with HMRC for Corporation Tax to file annual accounts and tax returns.

Lettings relief abolished

Lettings relief reduces tax bills for expats who have lived in a house that they have sold and is abolished from April 6, 2020.

The relief is worth up to £40,000 for each owner and is claimed per property, not just once in a tax year.

From April 6, 2020, expats cannot claim lettings relief unless they shared their home with a tenant.

Final period relief halved

Final period relief is an 18-month tax-free term worked retrospectively from the date the property sale is completed.

This period reduces to nine months from April 6, 2020.

CGT and double taxation

Britain has double taxation treaties with more than 150 countries that ensure taxpayers do not pay tax twice on the same income or gains.

In most cases, these treaties will apply to expats who will have to seek a credit from HMRC to file with their local tax authority.

CGT pitfalls to watch for

CGT is complicated and it’s easy to fall into a tax trap if you do not fully understand the rules. The main claim is private residence relief (PRR), which allows homeowners to sell their homes tax-free.

To help, here are some of the most common CGT pitfalls:

Grounds and gardens

CGT relief is typically applied to homes standing in grounds of up to 5,000 square metres. Over that, if the size of the grounds is disproportionate to the property, HMRC will start reducing PRR.

Sell before you go

If you are selling and splitting the title of a house in large grounds into two or more plots, do so before you go so PRR still applies to both. If you wait, only the plot where your home stands attracts PRR because the rest has ceased use as your home.

Don’t put up fences

If you partition off land with the intention of selling but retain the land, HMRC may try to claim CGT as the fenced off section is no longer part of your home.

Track your absences

Keep a log if you are an expat who have been and gone from your home at various times so you can show precisely when you lived in a property as your main home. PRR can be claimed for lots of reasons even if you did not live in the property.

Your log should cover the time before you moved in, for instance when the house was being refurbished. You can also claim PRR if you are separated or divorced and sign over your share of the property to your former partner.

If the home is rented out as a buy to let, keep tenancy agreements to prove the dates so you can claim lettings relief until April 5, 2020.

Home businesses

Don’t allocate specific parts of the property to a business, but explain rooms had shared private and business uses. That way, HMRC cannot argue a room had business use and PRR does not apply to a percentage of the home.

For instance, a home office takes up 12.5% of the home’s floorspace. If this was allocated as business use, you would lose 12.5% of PRR. Instead, show the room as a private study at evenings and weekends and an office during the day. The shared use means full PRR is applied.

Finding CGT tax advice as an expat

CGT is taxing to work out and will only get more complicated during the transition from new to old rules over the next year or so.

It’s important to find out how capital gains from property are tax-treated in the country where you live as well as in the UK before you sell a home.

Many expats may need tax advice in both countries from a suitably qualified professional, as many tax consultants are only licensed to give advice in one country.

More information

The UK government web site holds plenty of information about CGT for expats:

Living abroad and selling a UK home

Residence status and paying UK tax

How to tell HMRC about selling UK property as a non-resident

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