Capital gains tax: simple steps can protect expats from the worst
Britons overseas are now subject to CGT when selling UK properties, but this straightforward advice could help minimise the impact
Expats who have kept a house or flat in Britain need to act now to avoid being stung by a hefty capital gains tax (CGT) bill in the future.
Since the beginning of the tax year on April 6, new legislation has applied which taxes the gain made on residential property sold by all those living outside the UK. Before the new legislation was introduced, it was possible for expats to sell their UK property tax-free before returning home.
You can still reduce the size of your future CGT bill as the profit is calculated only on the increase in the property’s value from April 6 this year. To do this, you need to get it independently valued by a qualified chartered surveyor or a local estate agent as close to this date as possible even if you have no plans to sell it in the near future.
It’s a good idea to get two valuations – if they differ widely, you can always get a third and choose the one in the middle. The valuations will be in writing – keep them for your records in case the taxman asks for them after you’ve sold. Remember, surveyors will charge a fee while estate agents’ valuations are usually free.
Carol Cheesman of London-based Cheesmans Accountants explained that by not getting a valuation straightaway you may end up paying more tax when you come to sell. “By getting a valuation now, you know what figure you will be dealing with when/if you dispose of the property and you can therefore plan appropriately,” she said.
“A non-UK resident could also attempt to obtain a retrospective valuation, but this will be altogether more complex, time-consuming and costly.”
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When you do sell your property, you need to fill out a Non-Resident Capital Gains Tax (NRCGT) return and tell HM Revenue & Customs within 30 days of completing the sale regardless of whether you’ve made a profit or not.
The amount of tax you’ll pay depends on whether you are a basic rate taxpayer or not. Basic rate taxpayers earning up to £31,785 in 2015/16 will be charged 18pc on any gain while higher and additional rate taxpayers will pay 28pc CGT. For example, if you bought a property in the UK for £250,000 in 2005, which was valued at £500,000 in April 2015 and sold for £600,000 two years later, you would have to pay CGT on the £100,000 it had increased in price since April this year.
A basic rate taxpayer would pay £18,000 minus their annual CGT exemption (currently £11,100 in the 2015/16 tax year) and expenses while those in the higher tax bands would pay £28,000 minus their CGT allowance and expenses. If the property is held in a trust, the trustees have a CGT exemption of £5,500 while those held in a company have no exemption.
Elaine Ferguson at the Overseas Guides Company, which provides advice to expats, said: “From talking to the people we help to move abroad, we know that owning and letting a property in the UK is a popular way for expats to get income and keep hold of a sterling asset. Some decide to sell while still resident abroad and it is then that the new tax could hit them.”
In order for expats to pay no CGT, their property would have to be classed as their Principal Private Residence (PPR) for tax purposes. This can be done by them (or their spouse) living in the UK home for at least 90 days a year.
Alternatively they can return to the UK and live in the property before selling which would provide partial PPR relief. The method of calculating this relief is complex, depending on a number of factors, and it is advisable to consult a tax adviser who specialises in expats’ affairs.
