If you are a British Expat or a non-resident UK tax payer you will have no doubt seen the news headlines in recent months:
“Non-residents to pay Capital Gains Tax ("CGT") applies in certain cases when an asset is sold for more than it was originally purchased. The taxable gain (profit) may be triggered following the transfer of an asset, although commonly this would follow a sale. A number of tax reliefs are available to exempt or reduce the tax that may apply. Basic tax planning may... More on the sale of residential properties”
“Expats to lose tax free personal allowance”
These proposals could have a significant impact on your UK tax position, so let’s consider both in more detail.
Capital Gains Tax On Residential Property
Currently non-residents of the UK do not pay capital gains tax on the sale of a UK asset (subject to anti-avoidance measures for temporary non-residents).
This has always been the case and brings obvious significant benefits, especially for those who are tax resident in countries with a lower tax rate than the UK.
It was announced in the 2013 Finance Bill that news rules were being proposed in order to remove the exemption with regards the sale of UK residential property. Following a consultation period it is now anticipated new laws will come into force from 6 April 2015.
Unfortunately, at the moment the precise detail of these changes is not known and it has been speculated that properties will either be rebased to their current market value at 6 April 2015 or that the new rules will apply on a straight line basis from 6 April 2015 i.e. if you owned a property for 20 years and sold it on 6 April 2017 2/20 of the gain could be subject to capital gains tax. There is also uncertainty over how these changes will interact with the current laws which exempt a property from capital gains tax for periods it was used as a main residence. Further guidance from Her Majesty's Revenue and Customs (HM Revenue and Customs or HMRC) is a non-ministerial department of the UK Government responsible for the collection of taxes, the payment of some forms of state support and the administration of other regulatory regimes including the national minimum wage.... More regarding these specific points are expected in the coming months.
We are aware of many taxpayers who are considering selling their property prior to 6 April 2015 in order to avoid any complication with regards these new rules. If you own UK property and are considering selling it in the near future, we would recommend that an exercise is undertaken to consider what your tax liability might be if the property is sold post 6 April 2015.
The Tax Free Personal Allowance
Currently, British Citizens, EU National and may nationals and residents of countries with whom the UK has a Double Tax Agreement benefit from a tax free personal allowance of £10,000.
If the right to this allowance is taken away what impact will it have?
Special rules currently apply with regards the taxation of investment income for non-residents and certain income is not taxable by virtue of a Double Tax Agreement. It is therefore anticipated these rules will mainly effect non-resident landlords and those with income which is not treaty exempt i.e. government pensions and UK business income (including UK partnership profits shares).
For taxpayers paying tax in their country of residence, perhaps little or no impact other than a cash flow disadvantage as they should be able to claim some form of double tax relief in their country of residence. For those resident in a low tax regime, perhaps in the Middle East or Far East, this could create a significant additional tax cost of £2,000 to £4,000 per individual taxpayer, so double that for a married couple!
These proposals are currently in a consultation period and are unlikely to come into force until 6 April 2016 at the earliest. It may be possible to reduce your exposure under these proposals and specialist advice should be sought once the results of the consultation and draft legislation are published.
If you would like specialist advice in respect of either of these matters please contact us.