New Expat Capital Gains Rules Revealed By HMRC

Expats and overseas investors in the British property market have finally caught a glimpse of how the tax landscape is changing for them in the coming months.

Chancellor George Osborne announced a number of moves to increases property taxes for those living overseas in his Budget 2014 speech – but was a little light on the detail.

Since then, HM Revenue & Customs (HMRC) and the Treasury have gradually put more flesh on the bones with a series of consultation documents.

Proposals to remove the capital gains tax (CGT) exemption for non-residents has caused much consternation among expats who have a former home or investment property in the UK.

According to the consultation document, the CGT changes will net residential property owners – including those with buy to lets or shared houses let as bedsits or student housing.

Withholding tax

Expats will not lose their right to principal private residence relief (PPR), but they will no longer be able to elect their main residence. This is an anti-avoidance measure that stops an expat living overseas choosing a UK property as their main home in a bid to pay less CGT.

Overseas property sellers can expect to pay CGT at the same rate as British sellers – 18% for basic rate taxpayers and 28% for higher or top rate taxpayers.

CGT losses will still be allowed to be set off against chargeable gains.

However, a new withholding tax mechanism will be introduced that will work in a similar way to Stamp Duty Land Tax, only on the sale rather than the purchase of a property.

The new CGT regime for expats and non-resident property investors is timed to start from April 6, 2015.

ATED rates

The latest Finance Bill also includes tax rates and anti-avoidance measures for overseas property owners holding homes in limited companies.

Offshore companies and other non-natural persons will pay stamp duty will pay stamp duty at 15% on homes priced at £500,000 or more.

The ‘annual tax on enveloped dwellings’(ATED)  – homes owned by companies and other non-natural persons – will pay an annual charge on a sliding scale depending on the value of the property and CGT at a rate of 28% on disposal of the property.

ATED is charged at between £15,400 and £143,750.

“Although costly, many investors will just swallow these taxes as a consequence of investing in British property,” observed a spokesman for lawyers Wragge, Lawrence and Graham.

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