UK Property Sales to Pay Capital Gains Tax at Source
7 Tax Changes for Expats this Spring
UK Property Sales to Pay Capital Gains Tax at Source is the second of a series of 7 articles relating to tax changes affecting Expats this Spring 2020. The world moves on, and Expats should consider the tax efficiency of their assets to protect Family, Business, Property and Pensions Living and Working Abroad.
In the first of the series, we looked at Negative Interest Rates in Europe.
Here in the second of the series, ProACT Sam looks at Capital Gains tax.
UK Property Sales to Pay Capital Gains Tax at Source
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In the UK, if a person sells their own/main residence, the proceeds are paid to them Capital Gains Tax (CGT) -free.
That’s great if you live in the UK. But if you’re an Expat, the situation can start to get complicated.
You could keep the property empty with the aim of trying to claim it as your main residence, but that’s subject to approval and will soon be caught up in changes coming into force from 6th April 2020.
Expats need a clear vision of what will be happening, moving forwards. Below (and in the video above) is an overview of those changes being made from next month.
Capital Gains Tax of 28% on Residential Property
There’s a CGT of 28% on residential property in the UK (exclusions apply to property which is your main residence - see note below). That’s subject to an allowance of approximately £12k per annum, but if you’ve got a capital gain, it’s a tax of around 28%.
All properties in the UK were revalued in 2015. So if you bought a property in 2015 and you’re selling it for £100,000 profit today (excluding any allowances) your tax liability will be 28%. That’s £28,000 on every £100,000 profit you make on property sales.
For those people selling properties in highly sought-after areas (for example the centre of big, prosperous cities such as London or Manchester), these sums could be high.
In the past, Expats could avoid this charge, so Expats who are abroad and not in the UK at the time of realising those capital gains, can generally get an exemption from that as long as they don’t return to the UK within 5 years.
That can work for businesses, shares and many forms of capital assets, but NOT for residential property.
Please note, this does not apply if the property being sold is your main residence. However, if the property is being used as a rental property or if it’s a commercial building then CGT will apply at 28% if it is residential, slightly lower if it is a commercial property.
Change to Capital Gains Tax payment process April 2020
From 6th April 2020, for sale of properties (which are not a person’s main residence), there will be a CGT assessment at the point of sale. This has a really important impact on the sale:
Where buyers are used to paying Stamp Duty on their purchase of a property, sellers will now be required to pay CGT out of the sale proceeds. A sale cannot be completed until the CGT is paid.
If conveyancers (who are regulated under common reporting standards) are in any doubt that a CGT liability has to be paid, the seller must pay the tax in the same way that the purchaser pays the Stamp Duty.
So an Expat could have a legitimate claim not to pay that CGT (there could be mitigating reasons behind why it should not be paid), but if the sale is to go through, the conveyancer has to pay the CGT first to allow the sale to complete.
This is then followed by the seller completing a tax return which needs to be put forward in order for the seller to claim that money back in the event that they have good cause to do so.
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Deferred Capital Gains Tax payment no longer applies to property sales
In the past, you could sell a property on 6th April, complete your tax return in the following January and pay the tax a year later, so you could effectively get up to 21 months deferred payment for CGT.
Now, the liability becomes due when you sell the property.
This is a big move.
Family gifts to Family Trusts
The liability would not necessarily count for family gifts, so if you’re making a family gift to a Family Trust, there is a way to avoid paying CGT.
This new change also does not apply to any business or company assets you may have, any shares or other asset that is not real estate in the UK.
So there’s a big new tax for Expats to consider, or for anybody selling property from 6th April.
Expats need to consider the consequences of this change / tax liability, to be mindful of it in the buying / selling process and to consider the returns that need to be completed.
For guidance, contact ProACT Partnerships (see information below).
Want more help or information on how you can protect your Expat savings?
WATCH MORE HERE: A detailed Vlog where ProACT Sam discusses various scenarios www.youtube.me/ProACTPartnership
READ MORE HERE: our detailed and informative ProACT Partnership Blogs www.proactpartnership.com/blog
ASK us a question at our Facebook Page: www.fb.me/LivingAndWorkingAbroad
CONTACT-US for ProACT Know How and a Free Review online: www.proactpartnership.com/contact-us
DOWNLOAD OUR FREE BREXIT CHECKLIST FOR EXPATS
To keep in touch with the changes that will come into play during the Transition Period, ProACT Partnership has created a checklist for Expats to monitor. This provides a list of the 10 things Expats should follow during the Transition Period.