Capital Gains tax can get confusing when living abroad and it's one of the most common enquiries we assist non-residents. In this article we look at some of the UK Capital Gains Tax questions and scenarios that Experts for Expats and our tax partners regularly encounter when helping expats and non-UK residents.
Capital Gains Tax becomes more complicated when you live outside the UK but continue to own property, investments or other assets there.
Typical examples we encounter, especially from British expats, include people who have moved abroad several years ago but still own their former UK home, people selling a rental property.
Others have inherited a property from a relative or are now considering selling investments after leaving the UK. In some cases, the country where you now live may also want to tax the gain.
The basic UK Capital Gains Tax rules are covered in our main guide to UK Capital Gains Tax for non-residents. In this article we’re looking at some of the situations that can make the position less straightforward once you live abroad. These are based on enquiries we see on a regular basis.
This article is for general information only and does not constitute tax, legal or financial advice. Tax rules and their application depend on your individual circumstances and may change over time. If you are unsure about your position, you should seek appropriate professional tax advice from one of our trusted partners.
If you are non-UK resident and sell UK property or land, the disposal will generally remain within the scope of UK CGT. However, if the property was previously your main home, Private Residence Relief (PRR) may reduce the amount of the gain that is taxable.
The important point is that having lived in the property at some point does not necessarily make the entire gain tax-free.
Your entitlement to PRR will depend on your circumstances, including when you occupied the property as your main residence and what happened after you moved abroad. Special rules can apply to periods of non-UK residence.
The final nine months of ownership can also normally qualify for PRR where the property has qualified as your main residence at some point.
If you have owned a UK home for many years and subsequently moved abroad, it can therefore be worth calculating your potential CGT liability before putting the property on the market.
This is an incredibly common situation for British expats where someone has lived in their UK home for ten years, moved overseas and then rented it out for another five years before deciding to sell.
In this scenario, you do not simply pay CGT on the difference between what you originally paid and what you eventually sell it for.
Some of the period during which the property was your main residence may qualify for Private Residence Relief. The final nine months may also qualify, subject to the relevant conditions.
However, the period during which the property was rented out will not necessarily qualify.
It is also important not to assume that lettings relief automatically applies because the property was rented. For disposals since April 2020, lettings relief is generally restricted to situations where the owner was living in the property at the same time as the tenant.
The history of how you used the property can therefore make a substantial difference to the eventual tax calculation.
If you owned qualifying UK residential property before April 2015, you may be able to calculate the taxable gain using its market value at 5 April 2015, rather than simply calculating the increase in value from the date you originally bought it.
For example, imagine you bought a property for £100,000 many years ago. It was worth £300,000 on 5 April 2015 and you eventually sell it for £450,000.
Depending on the circumstances and calculation method used, the relevant gain for UK CGT purposes may be based on the increase from the April 2015 value rather than the entire £350,000 increase since you originally bought it.
There are different calculation methods available in some circumstances, so it should not automatically be assumed that rebasing will produce the lowest tax bill.
Different commencement and rebasing rules can also apply to non-residential UK property and indirect interests in UK property following the extension of the non-resident CGT regime in April 2019.
Being non-UK resident does not remove a UK rental property from UK CGT and if you sell it at a gain, you may have a UK CGT liability.
You will also need to report the disposal to HMRC within 60 days of completion, even if your calculation ultimately shows that no Capital Gains Tax is payable.
The gain is not necessarily just: sale price minus purchase price.
Certain acquisition and disposal costs can be deductible, as can qualifying capital expenditure on improvements to the property.
Normal repairs and maintenance are different and cannot simply be added to the property's CGT cost because you paid for them. Establishing the original purchase costs, improvement expenditure and any available reliefs before calculating the gain is therefore important.
If you are non-UK resident and dispose of UK property or land, you generally still need to report the disposal within 60 days even if there is no CGT to pay.
A capital loss may also be valuable to you as, depending on the circumstances, an allowable capital loss can potentially be used against taxable capital gains, subject to the relevant rules.
The important piece to remember is that you mustn’t assume that because no tax is due there is nothing to report or record.
Capital Gains Tax is calculated for each individual owner rather than treating a couple as a single taxpayer which means that each person's share of the gain, available Annual Exempt Amount and individual tax position can be relevant.
For example, if spouses own a property equally, the starting point will normally be that each has disposed of their respective interest in the property.
Ownership arrangements can be more complicated than this, however, particularly where the legal and beneficial ownership of a property differ.
Transfers between spouses and civil partners can also receive special CGT treatment in certain circumstances, but this should not be confused with the eventual sale of the asset being tax-free.
If you are considering changing ownership before a sale, take advice before making the transfer rather than assuming it will reduce the eventual tax bill.
If you inherit a property, you do not normally take over the deceased person's original purchase price for CGT purposes.
The starting value for a future CGT calculation will generally be the property's market value at the date of death.
For example, if your parent originally bought a property for £80,000, it was valued at £400,000 when you inherited it and you subsequently sell it for £450,000, you would not normally calculate your capital gain as £370,000.
The £400,000 value at the date of death would generally form the starting point for your CGT calculation, subject to allowable costs and any other relevant rules.
This is one reason why retaining probate valuations and supporting documentation can be important when an inherited property is eventually sold.
Not receiving any money does not necessarily mean there is no Capital Gains Tax.
When an asset is given away, CGT rules can treat the disposal as taking place at market value, particularly where the transfer is between connected people.
For example, if you bought a property for £150,000, it is now worth £400,000 and you give it to an adult child, the CGT calculation may be based on its £400,000 market value even though your child paid you nothing.
Different rules and reliefs can apply to transfers between spouses or civil partners and to some business assets.
Gifting a valuable asset should therefore be considered from a tax perspective before the transfer takes place.
If you are genuinely non-UK resident, you will not generally be subject to UK CGT simply because you sell shares in a UK company, but there are important exceptions to this rule.
These include the temporary non-residence rules, which can bring certain gains made while abroad back into charge if you subsequently return to the UK.
Special rules can also apply where you dispose of an interest in a company whose value is substantially derived from UK land.
You also need to consider the tax rules in the country where you are resident. A disposal that is outside UK CGT may still be taxable there.
It can be tempting to assume that once you have become non-UK resident you can sell investments without any future UK CGT consequences.
However, the temporary non-residence rules can cause certain gains realised while you were abroad to become taxable when you return to the UK.
Whether this happens depends on factors including your previous UK residence history, the length of your period of non-residence, when you acquired the asset and the nature of the gain.
For example, someone who has been living in the UK for many years, leaves, sells a significant investment portfolio while non-resident and then returns to the UK after a relatively short period should not assume that the gains have permanently escaped UK taxation.
If you are leaving the UK with substantial unrealised gains and there is a realistic possibility that you will return, this is an area where planning before selling can be particularly valuable.
The timing of a disposal around a move abroad can affect which country has the right to tax the gain and how much tax is eventually payable.
When making any financial decisions relating to moving abroad, you need to consider:
Selling immediately after moving abroad is not automatically more tax-efficient than selling before you leave.
Equally, selling before departure simply to "get the UK tax out of the way" may not produce the best result.
For significant gains, this is one of the situations where it can be particularly useful to obtain cross-border tax advice before the disposal takes place.
Selling a UK asset can potentially create obligations in both the UK and the country where you live. For example, the UK may tax a capital gain because it relates to UK property, while your country of residence may tax you because it taxes residents on worldwide gains.
That does not necessarily mean you will ultimately pay the full amount of tax twice because any existing double tax treaty and the domestic tax rules of the countries involved may determine which country has primary taxing rights and whether tax paid in one country can be credited against tax due in the other.
However, a double tax treaty does not mean that you can simply choose where to pay the tax or that you only need to report the gain in one country.
You are likely to still have filing obligations in both.
This is one of the areas where cross-border advice can be more useful than looking at the UK CGT calculation in isolation.
Before completing a significant disposal of an asset, it’s important that you establish:
The earlier you establish answers to these questions, the more opportunity there is to understand the tax position before an irreversible transaction takes place.
Tax advice becomes more useful when your position spans two tax systems, the asset has a long or complicated ownership history, substantial reliefs may be available, you have recently left the UK, or you expect to return to the UK at some point.
Tax advice is especially important before any sale where you have flexibility over when or how an asset is disposed because once the transaction has taken place, many of the decisions that could have affected the tax outcome may already have been made.
Experts for Expats can introduce you to UK and cross-border tax specialists who can review your circumstances, explain which rules apply and, where required, help with the relevant calculations and HMRC reporting.
