This is a topic I have mentioned in several articles on this website but the final guidance has now been issued by Her Majesty’s Revenue & Customs (HMRC) so we have clarity as to how tax will be applied on the sale of UK properties owned by individuals who are not resident in the UK.
Assuming the non-UK resident has no taxable UK income, then gains in excess of approximately £50,000 on disposal of UK residential property in a tax year will fall within the 28% CGT charge. Non-resident individuals will be entitled to the same annual exemption as UK residents i.e. the Personal Allowance of £12,500 in 2021/22.
What is a principle private residence?
This is generally the home of a UK resident so they are not taxed on the sale of the property but becomes a little more complicated once someone leaves the UK. In order to be considered a principal private residence (PPR) the following must apply:
- The property has been your main home since you bought it
- It hasn’t been rented out and you haven’t had lodgers
- You haven’t used part of it purely for business
- The size of the plot is no more than 5,000 square metres (just over an acre) in total
- It wasn’t purchased as an investment
Once a person is deemed UK non-resident for tax purposes any property they own in the UK cannot be a PPR as it is essential that they spend at least 90 days in any tax year in the property and that would make them a UK resident.
There was previously an exemption for the last three years, but this was reduced to just 18 months with effect from April 2014 and then to just nine months from April 2020.
Previously when the valuation of a property was required when calculating a capital gain figures from the Land Registry have been used but we now understand that formal valuations obtained by property owner, from reputable sources, can be used. This means employing a surveyor rather than relying on an estate agent.
HMRC has issued only brief general guidance. The valuation should ideally be obtained as near to 6 April 2015 as possible as this will provide the best evidence of the property’s market value at that time and so greater certainty. Whilst a historic valuation could be obtained at the time of a future sale this may be less secure as HMRC might well challenge any valuation which they consider to be unrealistic
It would also be sensible to record the overall condition of the property and any unusual features as this will help verify the value, especially for a non standard property.
Capital Gains Tax Allowances
While the level of tax payable us based on your marginal (income tax) rate, each person, whether resident or not, has an annual Capital Gains Tax allowance. This is £12,300 per person in the 2021/22 tax year and only gains above this are taxable. If a property is jointly owned, two allowances will apply.
Note that for all non-residents the sale of the property must be reported and the relevant tax paid within 30 days. There was a change of rules in April 2020.
The rate of capital gains tax payable depends on the individual’s marginal rate, essentially the highest rate of income tax that they would pay in the UK. Capital gains tax on property is either 18% or 28% with the amount being dependent on the amount of the gain and taking any other UK income, including pension income, into account. Note that this is higher than the rates chargeable on other UK gains.
To arrange a discussion on any aspect of your personal financial planning, please email me at email@example.com I run my own set-up under the Holborn Assets umbrella.
I am a highly-qualified and experienced Independent Financial Adviser with over 25 years of experience, the last 14 in the UAE and prior to that in the UK. I provide a fee-based personal financial planning service to expatriates resident in the GCC as well as commenting on these issues in The National newspaper every week where I answer reader and questions. My business motto is proper advice for nice people.
Please take a look at the many other useful articles on this website.
Article updated January 2022
UPDATE NOVEMBER 2022. The Capital gains Tax allowance will be reduced with effect from 6th Aptil 2023. It will be £6,000 for the 2023/24 tax year and then to just £3,000 thereafter.
See this article for details: UK Autumn Statement – a summary for expats