New rules introduced in April 2015 mean non-residents are liable to UK capital gains tax on the sale of UK residential properties. How does this work in practice and what do you, as an expat landlord, have to do about it?
First, let’s set the context.
Capital gains tax is paid on any financial gain you make when you dispose of or sell an asset, such as house or flat.
You don’t pay tax on what you’re paid by the buyer, only on the difference between what the asset was worth when you acquired it and what you sold it for, less any buying or selling costs.
That is, on the profit, in plain English, with lots of footnotes and caveats we won’t go into.
Prior to 5th April 2015, in general, people who were not UK-resident for tax purposes did not have to pay capital gains tax on assets sold in the UK.
However, new rules for residential properties kicked in 2015 for two reasons. First, because the UK Government wanted to raise more tax, obvious. And, secondly, to tackle a perceived issue of money draining out of the UK economy to landlords based overseas.
Fairly or not, there was a perception that a buoyant UK property market had become a playground for foreign investors, buying up large numbers of properties, renting them, and then selling them at a profit.
In itself, that’s not a problem – all part of the game, right? But it was a PR issue, essentially – an opportunity for the Government to show it was standing up for UK taxpayers and tackling so-called ‘tax dodging’.
The then-Chancellor George Osborne said as much outright in his 2015 Spring Statement: “In 2010, city bankers boasted of paying lower tax rates than their cleaners; the rich routinely avoided stamp duty; and foreigners paid no capital gains tax. We’ve changed all that.”
CGT for non-residents in practice
From 6 April 2015, non-residents who sold flats or houses in the UK were subject to capital gains tax at the same rate as UK residents, a rate of 18%/28%.
In April 2019, capital gains tax for non-residents was extended to commercial property, charged at 20%, as well as ‘indirect disposals’ of UK property or land.
That technical term refers to a situation where a non-resident sells their shares in a company deriving 75% or more of its gross asset value from UK land, where the individual making the disposal has an investment of 25% or more in that company.
What you need to do
Capital gains tax is only charged on the gain in value since 6 April 2015, not from when you acquired the property. That means you’ll need to calculate the difference in the property’s value over that period as the basis for your capital gains tax payment.
Another recent change to capital gains tax, which took effect from April 2020, is that if you sell a UK property, you have to report it and pay the tax within 30 days of completing the sale. So, if you completed the sale on 1 October, you’d have to report it by 31 October.
The vehicle for that report is a non-resident capital gains tax return, which can be completed online, or via a certified tax representative like UK Landlord Tax.
If you don’t file a return, you’ll get a late filing penalty, starting at £100 and ramping up the longer you leave it. HMRC might also add interest to any amount you owe.
And this is a really important point: you have to submit a CGT return even if you sell your property at a loss.
More non-resident property taxes on the way
In his Spring Budget back in March, Chancellor Rishi Sunak announced a new surcharge on residential property purchases by non-residents.
This measure is designed to make property more affordable for UK buyers and the Government has said it will spend the additional revenue raised on tackling homelessness.
It’s set at 2% and applies on top of existing stamp duty land tax (SDLT) on residential property in England or Northern Ireland.
It will apply to any transaction completing after 1 April 2021.
Don’t let tax put you off
Despite the various policy levers being pulled by politicians in an effort to influence the UK property market, investing in UK property is still worthwhile.
It would be a particular shame if anyone working abroad for a few years disposed of a valuable asset back home because of these pressures.
With a bit of smart advice and some sensible tax planning, there’s no need for CGT to stand in the way of you deriving good income from a rental property.
Handle it the easy way
If you’d like to sidestep the issue of making calculations, completing CGT returns and dealing with HMRC, let us handle it on your behalf.
Or if you’ve just got questions about how this might affect you, or want to talk about any aspect of non-resident property tax, get in touch.