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.
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 1982, 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.
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.
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.
Example: a UK residential property purchased in 2005 by a non-UK resident for £150,000 is valued at April 6, 2015, at £300,000 and it is sold in June 2015 for £310,000.
For a UK resident selling a buy-to-let property the gain arising would be calculated as the difference between the sale proceeds of £310,000 and the original cost of £150,000.
However, under this new rule introduced for non-UK residents, the gain will be the difference between the sale proceeds and the value of the property as at April 6, 2015.
If non-UK resident property owners do not get a valuation now, then an alternative would be to apportion the total gain over the whole period of ownership. However, this could result in a hefty tax bill. A non-UK resident could also attempt to obtain a retrospective valuation, but this will be complex, time consuming and costly.
We therefore recommend all non-resident landlords obtain a valuation of the property as soon as possible in order to avoid guesswork in the future, or costly valuation fees.
College and County have a great working relationship with Marshalls Surveyors they are able to carry out professional valuations of your property starting at £350+VAT. Please do get in touch if you would like to discuss this further or would like College and County to organise a valuation on your behalf.