Expats face complicated new capital gains tax rules (CGT) when they dispose of land or a home in the UK.
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Chancellor George Osborne indicated changes were on the way in Budget 2014, but has kept the wraps on how the new tax would work until now.
The new rules will take effect from April 6, 2015.
The first change is private residence relief is only available on an expat’s former home if:
- The expat disposing of the property was tax resident in the same country as the property for the tax year when the disposal was made
- If the expat is not tax resident in the same country as the property, their spouse or civil partner has to meet the ’90 midnight’ rule – which means they have to spend at least 90 nights in the property or other properties in the same country during the tax year of the disposal
If the one of the qualifying rules is met, the owner is entitled to claim 18 months of private residence relief on top of the time they spent living in the home.
90 night rule
The original proposal was no private residence relief would apply.
Should an expat have more than one property qualifying for private residence relief in the UK or spend more than 90 nights in a home in the UK, then they can nominate which is their main home.
Keeping financial re cords to prove the 90-day rule is vital for expats who want to claim private residence relief on the disposal of a home in the UK once they have moved overseas.
HM Revenue & Customs (HMRC) suggests the best way of proving tax residence is keeping a diary of where and when expats stay alongside visa and other travel documents.
Rebased property values
This could become an administrative burden as some homes could be owned for many years while expats could move around regularly.
Also, breaching the 90-day rule could make an expat tax resident in the UK under the statutory residence test.
The good news for expats is property values will be rebased to April 6, 2015, so only gains from this date will be taxed. Effectively, this gives expats a year or two to sell a property before any tax is due to alleviate the effect of the law change.
Expats living in countries without a double taxation treaty with the UK may also find they are due to pay CGT in their home nation as well as the UK on the same disposal.
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