Expats with property in the UK need to make some quick decisions if they want to sell up their assets.
Chancellor George Osborne has flagged a new tax regime is on the way which will mean expats paying capital gains tax on UK property disposals.
Despite not mentioning the tax change in his Budget 2014 speech, Osborne signalled a new capital gains tax regime for non-residents is on the way.
Current tax laws allow expats and non-resident property owners to sell property in Britain without paying capital gains tax.
The rule is a major tax planning tool for many property investors with large portfolios who retire abroad and then sell off their property saving thousands of pounds in tax.
Budget 2014 signals tax change
Meanwhile, UK residents must shell out capital gains tax at a rate of 18% for basic rate taxpayers or 28% for higher rate taxpayers.
Papers published with the Budget speech pledge a consultation paper detailing capital gains tax reforms for expats and non-residents is on the way – but gives no details on the proposed changes or when they will take effect.
This leaves a tax planning window of opportunity for expats and non-residents to sell off their investments tax-free, but no one knows how long it will stay open.
The Chancellor may well have pencilled in the date of April 6, 2015, for the new rules to take effect.
This would give property owners the chance to sell up before the new rules bite.
Just how much tax expats will pay is unknown as well. It’s unlikely to be tied to income, like the standard UK capital gains tax rate, as HM Revenue & Customs (HMRC) cannot track the earnings of non-residents.
More likely is a hybrid rate linked to the value of the property, similar to the way stamp duty works, or a rate somewhere between the 18% and 28% residents pay. An average would be 23%.
Capital gains tax is worked out on the appreciation in value of a property.
The formula is the selling price less the purchase price, less buying and selling costs like legal fees, stamp duty and estate agent fees.
Other amounts can be factored in as well, like the cost of any improvements to the property. These would include spending on an extension, loft conversion or garage, for instance.
However, the message for expat and non-resident property owners is not if the tax is coming – but when.
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