Those people who chose to move abroad but also decided to keep a house in the UK need to act quickly so that they do not get hit by a large capital gains tax (CGT) bill.
A new legislation was brought in at the beginning of the financial year and this means that any gains made on residential properties sold by those living outside of the UK will be susceptible to tax. Previously, expats were able to sell their UK property free from tax before they returned home.
The amount of CGT paid can still be reduced as any profit is based on the increase in value since the beginning of the financial year. To take advantage of this, the property has to be valued independently by a chartered surveyor or a local estate agent as close to the date as possible.
It is advised to get two valuations because it allows for an average price to be calculated and the valuations will be provided in writing which are great to keep on record should the taxman ask for them following a sale, however, remember that a surveyor will charge a fee but an estate agent is usually free.
It is important to get a valuation straight away because this can help to lower the amount of tax paid, without it, you could pay more. Having all the figures close to hand makes the whole process a lot more efficient when selling. It is also possible for a non-UK resident to gain a retrospective valuation but this can take longer and cost more.
When the time comes to sell a property a Non-Resident Capital Gains Tax return will have to be completed and HMRC will have to be informed within 30 days of completion regardless of whether a profit has been achieved or not.
The amount of tax to be paid will be dependent on whether you pay the basic rate of tax. Those that do pay the basic tax rate and earn up to £31,785 will be charged 18% on any profit whilst those who are additional rate taxpayers will pay 28% capital gains tax.
For many people who decide to move abroad, owning a property in the UK is a great way to earn an income whilst still owning an asset. Some opt to sell their property whilst they are still living abroad which is the point in which they could be hit with an unavoidable tax bill.
For expats to avoid paying CGT, the property would have to be classed as the Principal Private Residence for tax purposes. This can be done by them if they live in the UK for a minimum of 90 days per year and they also have to be classed as a UK resident which means they pay UK tax.
Their other option is to come back to the UK to live before selling the property which would give them partial Principal Private Residence. This relief can be difficult to calculate and it is dependent on a number of factors so consulting a tax advisor is a wise move.
This article was provided by international property investment specialists, the Overseas Investor.