Time to take stock of UK and overseas property

30th April 2015

British expats and people with holiday homes overseas should take stock in view of recent changes to Capital Gains Tax legislation.

Capital Gains Tax (CGT) has been extended to non-UK residents selling UK residential property. As the tax will be calculated on the gain made after 5th April 2015, owners need to record the value of the property and its general condition now, in order to deal with the tax when they eventually sell. HMRC are likely to challenge any valuation considered unrealistic, therefore a current valuation by a professional is advisable.

The changes are designed to close the loophole that benefited non-residents making a gain on the sale of a UK property where it was not their main home and whilst the aim and 'headline' was about tackling wealthy investors in the UK property market, it also affects British expats working overseas.

Until now, Capital Gains Tax was paid only by people resident in the UK. Now, those based overseas will be treated in the same way. Individuals will have the same CGT annual exemption, which is ?11,100 in 2015/16. They will be taxed at the same rate, 18% or 28% depending on the individual's UK income and the amount of any gain on disposal of the property.

An April 2015 valuation is important as the tax will only apply to gains made above the market value from the time of the new legislation ie. 5th April 2015. The alternative option for calculating any gain is to use the original cost of the property and then time-apportion from that figure.

Principal Private Residence relief (PPR) rules now apply to non-residents disposing of a UK property and to UK residents disposing of a property abroad. A property will not count as the principal residence (and therefore free from CGT) unless the person making the disposal was resident for tax purposes in the same country as the property for that tax year, or they spent at least 90 overnight stays in the property. The overnight stays must be fully documented, as evidence for HMRC.

The impact for owners of holiday homes abroad is that they no longer qualify for PPR on their foreign home unless they spend at least 90 days there in any tax year. For those who had planned to make a more permanent move abroad and become non-resident, the new rules mean they are likely to have a Capital Gains Tax bill when they sell their UK property, possibly without the benefit of full PPR.

The 90-day stay can be split between spouses if they are joint owners of a property, but it is likely to be difficult for anyone to qualify unless they are semi-retired or able to work flexibly. Equally, if an owner needs to spend 90 days in an overseas property which is let, it is likely to put a stop to long term letting.

Expats who have had a spell overseas as a work requirement will still be able to claim PPR if they return to live in their main UK property but the changes are going to have a big impact on future planning for both expats living abroad and UK residents with holiday homes overseas. There may well be options which can be investigated such as setting up a trust but this will need professional advice and is very much dependent on personal circumstances.

Website content note: This is not legal advice; it is intended to provide information of general interest about current legal issues.

For advice about Capital Gains Tax, Trusts and associated issues, please contact our Private Client department on 01491 572138 or email Paul Stott pstott@mercerslaw.co.uk ; Peter Hopkins phopkins@mercerslaw.co.uk ; Guy Barker gbarker@mercerslaw.co.uk ; or Sarah Beamish sbeamish@mercerslaw.co.uk

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