Capital Gains Tax Considerations, for Expats Selling UK Properties

Starting from April 6 2015, expatriate homeowners have a requirement to pay capital gains tax when selling a UK property. This change in legislation was introduced by the coalition government to ensure that non-residents who make profits from selling UK properties are taxed similarly to UK residents.

Before April 6 2015, landlords who invested in buy-to-let properties could move abroad and sell their rental properties without having to pay capital gains tax as long as they stayed outside the UK for at least seven years. This approach was commonly used by individuals as a tax method of divesting their investment properties.

Who is Responsible for Capital Gains Tax According to the Updated Regulations?

British expats or non-resident landlords who own property in the UK are now obligated to pay capital gains tax on any profits they make from property sales. It’s important to note that certain types of properties, such as care homes and purpose-built student accommodations, are exempted from this requirement.

The new regulations will mainly affect landlords who own properties for renting purposes, holiday accommodations, or expatriates who have moved abroad but still have their residence in the UK. Additionally, more intricate rules apply to homes owned under trusts or by companies, ensuring a comprehensive tax framework.

Calculating the Gain

According to the government, any increase in property value that occurred before April 6, 2015, will not be subject to capital gains tax. As a result, properties are considered “rebased” from this date. This means that for expatriates, the calculation of capital gains tax will start from the property’s value on April 6, 2015, rather than its original purchase price.

Expatriates must:

• Provide a valuation of their property as of April 15, 2015, when submitting their tax returns.
• Hire a surveyor to perform this valuation since estimates from real estate agents are not accepted.

The 90 Midnight Rule and Its Implications

Expatriates can only benefit from residence relief (PRR) and letting relief if they meet the requirements of the new “90 midnight rule.” PRR allows exemption from capital gains tax for the period during which the owner lived in the property plus 18 months. To qualify for this relief, the owner must either be tax resident in the same country as the property during the tax year of the sale or they or their spouse must spend no less than 90 midnights in the home or any other home they own in that country during that tax year. Nights spent together by a couple count as a single night.

It’s crucial to note that if an expat spends 90 midnights or more at a home in the UK, they may be deemed tax resident by HM Revenue & Customs (HMRC) under the statutory residence test. This could make their worldwide gains and income subject to tax in the UK, so the tax benefits of claiming PRR need to be weighed carefully against the financial implications of doing so.

Tax Rates and Exemptions

Expatriates can take advantage of the annual capital gains tax exemption and claim reliefs such as costs related to property disposal after April 5th, 2015, improvement expenses, and expenses associated with defending ownership rights. The capital gains tax rates are 18% for basic rate taxpayers and 28% for higher and additional rate taxpayers.

Paying the Tax

When it comes to paying the tax, you usually have 30 days after the sale is finalised, similar to stamp duty for buying property. It’s important to inform HMRC about selling the property. They will give you instructions on how to make the payment.

If you want examples and information about capital gains tax for expatriates and non-residents, check out the HMRC website.

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