New UK capital gains tax on property
UNTIL NOW, many British expatriates have been able to sell UK property without having to pay any capital gains tax in the UK. This changes from April when new rules come into effect.
The concept of charging UK capital gains tax on the disposal of UK residential property owned by non-residents was first mooted by Chancellor George Osborne in his 2013 Autumn Statement. Following a consultation, the government published legislation on December 10, 2014. The new rules apply from April 6, 2015.
Currently, if you are non-UK resident and remain so for five complete and consecutive UK tax years, gains made on the disposal of UK property are not taxable in the UK. From April gains will be subject to UK capital gains tax, regardless of how long you have lived abroad.
The new rules apply to non-UK resident individuals and non-resident partners in UK resident and UK non-resident partnerships, companies and trusts, and only apply to residential property, which is defined as “property used or suitable for use as a dwelling”.
The tax charge will be the same as UK residents pay. For individuals this is 18 per cent or 28 per cent.
The annual exemption of £11,100 (from April 2015) is available to individuals and partnerships.
It is gains arising from April 6, 2015 that will be taxed. The government will allow either rebasing to April 5, 2015 or a time-apportionment of the whole gain, in most cases. You would also have the option to compute the gain (or loss) over the whole period of ownership.
Under UK legislation, an individual’s main home is exempt from capital gains tax, thanks to the “private residence relief”, which is available if certain conditions are met.
Non-UK resident individuals and trustees may be able to benefit from the relief if they meet new qualifying conditions. The provisions also restrict access to the relief for properties located in a jurisdiction where the owner is not tax resident.
This applies both to non-residents disposing of UK property and UK residents disposing of residential property abroad, such as here in Cyprus.
From April you can apply the private residence relief to a property if you have resided in it for 90 midnights or more over the tax year. If you own more than one property in a country the 90 days can be spread over the properties.
Therefore, if you live in Cyprus and own a UK property, if you spend 90 days in that in the year you sell it, you can nominate it as your principal residence.
This may however have other tax consequences for you. British expatriates always need to pay careful attention to the UK’s Statutory Residence Test rules if they want to ensure that they do not become UK resident for tax purposes. You need to be very careful and seek specialist advice to weigh up the pros and cons and look at your tax situation as a whole.
When considering the tax efficiency of your UK property, if you rent it out bear in mind that you may in future lose the UK personal allowance on the income.
This is something the UK government is considering, though it has delayed making a decision to allow time for further consultation. If the change does go through, it would mean that rental income which may have not attracted UK income tax until now could be taxed.
You need personalised professional advice to ensure you have all the necessary facts and establish the solution that works best for your situation and objectives.
Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; an individual is advised to seek personalised advice.
