New Property Tax for Expats
by Martin Rimmer
For those who have been following developments, for the last 12 months the Government has been working on the outline of a new charge to Capital Gains Tax (CGT) on non-residents who sell UK residential property.
A 28 page consultation response was published in November which shed a little more light. The table below outlines what we know so far:
|When will the tax take effect?||6th April 2015|
|What properties will be affected?||Residential properties held by non-residents (including companies, trusts and partnerships) which do not attract specific exemption|
|What part of the gain will be taxed?||Only the part of the gain which accumulates from 6th April 2015|
|How will the value of the property be assessed at 6th April 2015?||You will have a choice between taking an open market valuation, time apportionment or neither|
|What rates of tax will apply and what allowances will be given?||For private individuals, the standard Annual Exemption will apply, and the standard rates of 18% and 28%|
|What if the property was my Principal Private Residence?||Certain reliefs will apply to reduce the gain which is taxable after 6th April 2015|
|What if I hold the property through a non-resident company?||The tax rate will be 20% and further relief for inflation will apply|
|When does the tax have to be paid and how is it reported?||Reporting the sale within 30 days in all cases. For those with a live existing relationship with HMRC, tax may be paid by the normal self assessment deadline. Otherwise, tax should be paid within 30 days of sale.|
The draft legislation was published on 10th December and whilst this is likely to contain one or two minor tweaks when finalised, the above and below is an accurate summary.
Principal Private Residence
One important development centres on the issue of Principal Private Residence. The intention was always to continue to give relief where a property has been used as a person’s Principal Private Residence. However, the Government recognised that this could be open to abuse – what, for example, would have stopped a non-resident electing for the UK property (otherwise liable to CGT) as their main home? A new rule will be introduced which will prevent someone from electing a property to be a main residence for a tax year in which they are not resident there for tax purposes, or have not spent at least 90 midnights in that property in the tax year. What this means is that a UK property can only qualify as a main residence for a non-resident if it is used for at least 90 midnights in the tax year. The same will be the case the other way around – a UK resident will not be able to elect for a foreign property to be their main home unless they have used it for at least 90 midnights in the tax year. It looks as though this rule will be retrospective to periods before 6th April 2015. It is certainly advisable to review whether and when a given property is or has been occupied as your main home at any time during ownership, possibly by reference to time actually spent there, and whether or not main residence elections have already been filed.
One thing that is clear is that if a property has qualified as your Principal Private Residence at any time, you will be able to exempt the gain relating to the last 18 months of ownership from the taxable part of the gain. Letting relief may also be available to counteract the gain further. In short, the fact that a property was a main home before the tax charge came in, does not prevent relief applying to the part of the gain which is taxable from April 2015. This is good news.
Calculating and paying the new tax
As expected, the Government has confirmed unambiguously that it will only tax the part of the gain which accumulates from 6th April 2015. So, the inevitable question that needs to be answered is how to value the property at that date.
The Government have decided to offer a choice between a straight market valuation and time apportionment. HMRC have implied that whichever methodology gives the best result to the taxpayer can be used. In cases where properties lost value before April 2015 and gained value after April 2015, HMRC will allow the original cost to be used to calculate the chargeable gain.
In order to calculate the gain accumulating after April 2015, it is advisable to get a valuation of the property at that date. HMRC have not stated how they wish the property to be valued at this date, therefore, until there is clarification it may be sensible to seek a valuation by a professional RICS approved valuer, although they cost money, or by seeking several valuations from independent estate agents and taking an average.
Although it is not very common to sell a property at a loss in the UK, the Government is going to allow non-resident property losses to be set against similar gains or, in years in which you are resident in the UK, set against any taxable gains.
As far as payment and reporting are concerned, the Government has decided not to apply tax withholding. However, in all cases HMRC will need to be notified of the sale within 30 days, which will also be the time to nominate the property as a Principal Private Residence if that is relevant. If you already file tax returns the tax is payable by the normal Self-Assessment payment deadline. Otherwise, if you do not, it is due within 30 days of completion.
In conclusion, it has been a long and drawn out process to get this far, and there is more to come. Watch this space!
About the Author
Martin Rimmer is a Senior Tax Manager at The Fry Group. He specialises in residence, domicile, inheritance tax planning and tax-efficient wealth structuring and protection. Based in Singapore, he joined The Fry Group in 1999 and now has responsibility for Private Clients throughout South East Asia, providing bespoke UK tax planning and compliance solutions, opinions and technical briefings.
At The Fry Group we have immense experience in identifying your UK tax exposures and working with you to come up with sensible and workable solutions. To find out more about how we can help you, contact us at firstname.lastname@example.org or call +65 6225 0825.
Wilfred T Fry (Personal Financial Planning) Ltd is authorised to act as an Investment Adviser by the Monetary Authority of Singapore (MAS). License number FA095023. The information in this article aims to provide information. However, this is not intended to form professional advice nor should it be relied upon as such and before taking any particular action, specific and personal advice should be obtained. All levels and basis of, and relief from taxation illustrated here are subject to change.