Are you thinking of selling property in the UK? As an expat in Britain, you need to be aware of changes to the law which could see extra taxes levied against the profit your property sale produces.
It is important to be aware of the Capital Gains Tax laws and how they will affect you as an expat. The rules vary depending on your residential status. However, bear in mind that temporary residents, non-residents and established citizens could all be subject to the new tax in some form.
Selling property in the UK – Update to UK’s Capital Gains Tax laws
Until 2015, a loophole existed in British law which meant British expats and foreign investors could avoid Capital Gains Tax (CGT) on a property sale, under certain conditions. Capital Gains Tax is a charge made against the profit received from the sale of an asset, usually a residential property. Main residences are usually exempt from the Capital Gains Tax; it is usually applied to second residential properties, and to property portfolios.
Avoiding CGT as a non-resident
To avoid paying this tax, a property owner could sell their assets after living outside of the UK for one year or more. These non-residents could, therefore, avoid the CGT charge entirely, and make a significant profit on a sale as a result.
The loophole has since been closed, with a change to the law made in April 2015. That new law has now come into effect and will be applied to all future residential property sales in the UK – as well as to all assets that have risen in value to the point of profit. It is important to note that an advantage will still be applied to those with non-resident status for more than five years prior to the sale.
Tax considerations for expats
This exposes thousands of expats to a new tax on gains from property held, and it requires action on the part of property owners to avoid accumulating high back taxes. The tax is set at 18% below the lower limit threshold, and 28% above this limit.
Residential property owners should take action, ordering an immediate valuation of their assets to determine whether Capital Gains Tax applies to their profits. It is also crucial that taxpayers keep good records of their time spent overseas or at home. Expats should especially be aware of their length of residential status – otherwise it will be very difficult to take advantage of the new five-year rule.
Tax in the UK isn’t all there is to worry about – so remember, if you need help with your Australian tax returns, contact us today at Expat Tax Services.
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Comments 4
Hi
I am looking at selling my UK property and been resident in Australia for 10 years. How can I avoid to pay CGT? Do I need to notify HMRC?
Thanks.
Hi
Thanks for you question.
There are many things to consider in working out your capital gain. Some of those will be determining your cost base for the Australian capital gains tax calculation, main residence exemptions, your Australian tax residency status and type of visa during your time in Australia.
You will need to comply with all HMRC requirements even though you are living in Australia. You will need to include the gain in your UK return and if you pay tax on the gain in the UK you will be eligible for claim some of tax paid in the UK as a foreign tax credit on your Australian return.
There are many factors to consider in your capital gain calculation so I’d highly recommend contacting our team to discuss further.
Regards
Terryn
I have just been left a part share in my mothers house in the uk. I live in Australia (25 years). Do I pay CGT here or in the uk.
Hi Dave,
Sorry to hear about your mother passing away.
There are several things to consider in relation to the tax consequences of this, both in the UK and Australia.
Get in contact with us at Expat Tax Services to discuss further in relation to your circumstances.
Thanks
Terryn