Rorschach
23rd July 2008, 02:15 AM
As many of us our now considering renting out our houses/flats in the UK instead of selling, I thought I would investigate the issue around Capital Gains Tax on selling your property (KerryS has also posted something similar on the 'renting' thread).
I'm no tax expert, but these are the Inland Revenue rules as I understand them.
Taking an example of someone who owns a property that they bought for £150k and have lived in for 5 years prior to moving abroad. Lets say upon selling, they can realise £250k for it.
1. If you sell within 3 years of moving abroad:
In this case, your property in the UK is still considered your primary residence and therefore you are not liable for any capital gains tax on the equity you make. Therefore the £100k equity (as per the above example) is all yours.
2. If you sell after 3 years but before you have been a non-resident for 5 full tax years:
Then essentially you will pay capital gains tax as the property will no longer be considered your primary residence in the UK, however, it's not as bad is it may seem at first.
The Inland Revenue only charges you on the period for which your property was not considered to be your primary form of residence.
In the example above, they would say that the 5 years you actually lived in the property would be added to the first 3 years you were non-resident to give a total of 8 years that the property is considered to be your primary residence. Lets say you sold it after 4 years of being away from the UK, so they would say for 8 out of those 9 years, it was your primary residence and not liable for CGT. So they will want to tax you for 1 ninth, ie. 1/9 * £100k (the equity) = £11,111.
Against that you can claim capital gains tax relief of £9,600 (for 2008/09 for individuals - double that relief if you are a couple and jointly own the property).
This then leaves: £11,111 - £9,600 = £1,511 on which they will charge you tax.
I'm not sure of the rate used, but usually this is the income tax rate you are on. Ie. 20% or 40% if you are a higher rate tax payer (although if you're not in the UK you haven't earned any income so maybe the rate is 20% or even 0% if you haven't earned enough - someone else may be able to clarify).
Lets say the worst case scenario, 40% then you would actually be taxed £1,511 * 40% = £604 and be left with £99,396 of the £100k equity.
3. If you sell after being a non-resident for 5 full tax years:
You are not considered to be liable for CGT by the Inland Revenue, so again, as in 1. the £100k is yours.
I hope the above clarifies, but if anyone knows different, please add to the thread in case I've missed something. I've spoken directly to the UK Inland Revenue about this who have agreed the above is how this would be calculated.
I'm no tax expert, but these are the Inland Revenue rules as I understand them.
Taking an example of someone who owns a property that they bought for £150k and have lived in for 5 years prior to moving abroad. Lets say upon selling, they can realise £250k for it.
1. If you sell within 3 years of moving abroad:
In this case, your property in the UK is still considered your primary residence and therefore you are not liable for any capital gains tax on the equity you make. Therefore the £100k equity (as per the above example) is all yours.
2. If you sell after 3 years but before you have been a non-resident for 5 full tax years:
Then essentially you will pay capital gains tax as the property will no longer be considered your primary residence in the UK, however, it's not as bad is it may seem at first.
The Inland Revenue only charges you on the period for which your property was not considered to be your primary form of residence.
In the example above, they would say that the 5 years you actually lived in the property would be added to the first 3 years you were non-resident to give a total of 8 years that the property is considered to be your primary residence. Lets say you sold it after 4 years of being away from the UK, so they would say for 8 out of those 9 years, it was your primary residence and not liable for CGT. So they will want to tax you for 1 ninth, ie. 1/9 * £100k (the equity) = £11,111.
Against that you can claim capital gains tax relief of £9,600 (for 2008/09 for individuals - double that relief if you are a couple and jointly own the property).
This then leaves: £11,111 - £9,600 = £1,511 on which they will charge you tax.
I'm not sure of the rate used, but usually this is the income tax rate you are on. Ie. 20% or 40% if you are a higher rate tax payer (although if you're not in the UK you haven't earned any income so maybe the rate is 20% or even 0% if you haven't earned enough - someone else may be able to clarify).
Lets say the worst case scenario, 40% then you would actually be taxed £1,511 * 40% = £604 and be left with £99,396 of the £100k equity.
3. If you sell after being a non-resident for 5 full tax years:
You are not considered to be liable for CGT by the Inland Revenue, so again, as in 1. the £100k is yours.
I hope the above clarifies, but if anyone knows different, please add to the thread in case I've missed something. I've spoken directly to the UK Inland Revenue about this who have agreed the above is how this would be calculated.