UK Property - Expats now pay tax
In the past, non-residents who have been absent from the UK for five years have generally been exempt from CGT, even on their UK assets. From 6 April 2015, these rules have changed, so that non-residents owning UK residential property are subject to CGT. This is now known as NRCGT – non-resident capital gains tax.
Background to the change
In the Autumn Statement of 2013, the UK Government stated that the law confirming that non- residents are not liable to UK CGT on disposal of UK assets was something of an anomaly compared to the stance taken by many of their European neighbours. Announced was a clear desire to tax UK property gains for such individuals and, following the 2014 Budget which initiated a short period of consultation, the law changed for the start of the 2015/16 tax year.
This change applies only to UK residential property. Other UK situs assets remain outside the scope of CGT. Also, this remains out of kilter with income tax and inheritance tax, where non-residents with UK source income and situs assets are subject to these taxes.
Calculating the gain
Only the proportion of the overall gain that relates to the period after 5 April 2015 is chargeable, and this can be calculated in one of two ways, at the choice of the taxpayer. Option one, ‘re-basing’, requires the sale value to be reduced by the open market value on 5 April 2015. Option two, ‘apportionment’, allows the full gain from purchase to sale to be reduced by the period of ownership until the rule change as a proportion of the full time of ownership. If there is a loss upon disposal, the full reduction in value can be used or carried forward as a loss, without the need for apportionment.
As it is the taxpayer’s responsibility to accurately value the property, it is in their interest to consider acquiring one or more professional valuations close to the rule change
The rate of CGT
The rate of CGT is the same as for a UK resident individual, currently 18% and 28%. Which rate applies depends upon the size of the gain and the individual’s other UK income and chargeable capital gains in the year of disposal.
The annual CGT exemption is also available, currently £11,100, or two exemptions if the property is jointly owned.
Payment of NRCGT
A NRCGT reporting form now exists. The CGT is payable in the normal way for a taxpayer already within the self-assessment system. For those who are not, tax is payable within 30 days following conveyance.
Private residence relief
This remains available to the extent that the property is the owner’s only or main residence. However, from 6 April 2015 this can only be claimed where a new occupancy test is met, and on a year-by-year basis. The test is met if the taxpayer or spouse/civil partner stay in the property for at least 90 nights during the tax year in question.
Several other Private residence relief (PRR) ‘subsidiary reliefs’ remain. Where the property in question was once the taxpayer’s main residence, ‘final year relief’ allows a further proportionate reduction in the gain. This is currently set at 18 months (36 months prior to 5 April 2013).
Where the same property was let out, ‘lettings relief’ reducing the remaining gain further is available up to a maximum of £40,000.
Finally, there may be qualifying periods of absence (‘absence relief’) where the owner was overseas in work related accommodation at the requirement of their employer, and no other properties were owned.
There’s more to consider than just new NRCGT when it comes to tax
IHT shouldn’t be forgotten. There is a common misconception that only the estates of UK domiciles are subject to UK IHT. This is not the case, and any UK property will create a taxable estate for a non-domicile, whether resident or not. The liability upon death being 40% above a nil rate band of £325,000.
Also, rental income is subject to income tax in the UK. Whilst the £10,600 personal allowance might partly offset this, consultation initiated in 2014 concluded that it would be desirable for this advantageous feature to be removed for most non-residents from 2017. Further consultation is expected.