From April 2015 UK Capital Gains Tax will apply on property sold in the UK by owners of UK property living abroad.
On 5th December 2013 the UK Chancellor George Osborne announced that a Capital Gains Tax (CGT) will apply for the first time on the gains made on the disposal of UK residential property by non-UK residents, from April 2015.
Investors who previously lived in the property will also receive less tax relief as well. There is very little detail provided on the implementation of the tax right now.
The UK property market has been quite appealing to foreign buyers over recent years, who see UK property as a “safe haven” in times of market turmoil, economic crises and low interest rates. Many new developments in central London’s most upmarket boroughs are being sold to foreign buyers. This has become such an issue in London that recently the mayor, Boris Johnson, pledged he would force developers to market all new homes to UK citizens first.
Currently only UK residents pay the CGT on sale of property that is not their principal residence. Basic rate taxpayers pay 18% of the profits, while higherrate payers pay 28% (after deduction of certain allowances). We understand that any property gains made on your property up until April 2015 will at least be exempt from capital gains taxes, and the tax should apply only to gains after this date.
This may prompt some property owners living abroad to sell their property prior to or just after April 2015, however there is still plenty of time for action, and the details have not yet been developed and made into law by the government, so it’s wiser to watch this space for developments.
Some London property experts believe that tax is not the major motivation for buying London property in the first place, and this change will only mean that less property will become available in future for local buyers, as affluent owners will have more reason to simply buy and hold. It is worth noting that cities like New York and Paris already have equivalent taxes between 35% and 50% on property gains, depending on residency status.
Other changes include the news that private home sales in the UK will attract a higher CGT if one has not lived in their home for more than 18 months when they sell. Currently anyone selling a home they have previously lived in could count on 3 years of capital gains relief adjustment, but that period will be halved to only 18 months.
As yet it’s too difficult to tell if non-resident-but-UK domiciled britons abroad will be liable to the tax if it is their only property in the UK and would be deemed their Principal Private Residence (PPR) on their return.
In 2012 the Government introduced an Annual Tax on Enveloped Dwellings (ATED – essentially a property owned by a company) as well as the 15% additional rate of Stamp Duty for properties over £2m. The ATED is payable on properties worth > £2mill however from April 2015 it applies to property valued > £1mill and from April 2016 even property valued >£500k. Note the ATED does not apply to residential properties rented to tenants on a commercial basis (Buy to Let properties) or property used for business.
Buy-to-let properties purchased by an offshore company are not liable to the 15% Stamp Duty rate introduced in 2012. As with all properties held in an offshore structure, they also do not fall under current UK inheritance tax.