Expats and other non-UK residents selling or gifting UK residential property will now pay capital gains tax under changes which take effect from 6th April 2015. The new rules apply to the disposal of residential property only and not commercial property or land, or indeed any other asset class.
The new rules are a significant departure from the previous position. Where a person is non-UK resident for at least five years, capital gains tax did not previously apply to any disposals they made during the period of non-residence, including disposals of UK residential property. A disposal is any gift, sale or a sale at less than market value. These rules will continue for all asset classes other than UK residential property.
Individual taxpayers will be subject to capital gains tax at the same rate as a UK resident individual, i.e. 18% or 28% and will also be entitled to the annual exempt amount. Certain types of residential property are excluded from the charge such as accommodation for school pupils or the armed forces, residential care homes and hotels or similar establishments.
Only gains from 6th April 2015 will be subject to tax. Where a property was owned before 6th April 2015, an election can be made for the post 6th April 2015 gain to be calculated by the total gain during the ownership period, being apportioned between the number of days ownership pre- and post-6th April 2015. Alternatively, the gain can be determined according to the market value of the property from 6th April 2015. Given the choices in determining post 6th April 2015 gains, it would be sensible for valuations of property at that date to be obtained. On a future disposal the method of determining the post 6th April 2015 gain which results in the lower gain can then be used.
Anyone who owns UK residential property and who has been or intends being non-UK resident for at least five years, but who only intends to dispose of their UK property after they return to the UK, will be liable to capital gains tax on all gains on the property and not just the post 6th April 2015 gains. Anyone in this situation should consider triggering a disposal of the UK residential property to a family holding structure before 6th April 2015 so the structure is only subject to tax on gains after 6th April 2015 on a future disposal of the property. Alternatively, the property could be sold prior to returning to the UK while they are still non-UK resident so that tax is assessed only on the gain accruing from 6th April 2015 rather than on the whole of the gain realised.
Where a non-UK resident owns a property in the UK in which a family member or friend is living, the post 6th April 2015 gains on such a property would be within the scope of UK capital gains tax if they sold it while non-UK resident. In this situation, transferring the property now to a trust, should enable 100% principal private residence relief to be available.
If you or a family member are non-UK resident and own residential property in the UK then you should take advice on how the changes will affect you.
If you are affected by the proposed extension of capital gains tax to disposals of UK residential property by non-UK residents or wish to discuss how Turcan Connell can assist you, please contact Donald Simpson, Partner or Heather Thompson, Partner.