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Changes to Capital Gains Tax

Posted on 2015-05-12

It had been looming for some time and as of last month (April 6th) rules surrounding Capital Gains Tax (CGT) on properties sold by non-UK residents have changed for good.

Put simply, Capital Gains Tax is a tax on the profit when you sell an asset that’s increased in value. The gain you make is taxed, not the amount of money you receive.

UK residents who sell a property that is not their home – which are often buy-to-let properties - are liable to pay capital gains tax and these rules, which you can see here, have remained the same.

The new rules affect overseas residents who own property in the UK, many of whom will be landlords. Until last month, these owners could have sold up and benefitted from any gains tax free. Now they will need to pay CGT, although the good news is that any gains will be calculated from the value of the property on April 6 2015.

Overseas landlords/property owners need to act now to avoid paying an unnecessarily large tax bill. For landlords not currently based overseas, this information is still vitally important to know if you ever move abroad and continue to rent out a property in the UK.

Using an example of a property purchased for £200,000 in 2005, valued now at £300,000 and sold in 2016 for £325,000, under the new system the owner will only have to pay tax on the amount between £300,000 and £325,000 rather than between the initial purchase price and the eventual sale price.

An expert in the field, Carol Cheeseman of accounting firm Cheeseman Accounts, says that to avoid being caught out by the new system, non-UK residents who own a property in the UK should consider obtaining a valuation of the property now, even if they have no current plans to sell.

“If you don’t get a valuation now then an alternative when you dispose of the property would be to apportion the total gain over the whole period of ownership,” says Cheeseman.

“However, this could result in a significant gain arising where there has been a dramatic increase in the property value since the start of ownership. A non-UK resident could also attempt to obtain a retrospective valuation, but this will be altogether more complex, time consuming and costly,” she warns.

Most experts advise that owners get a valuation from two or three sources. Estate agents commonly offer a free market appraisal and chartered surveyors will charge for an official valuation. In order to take advantage of the new rules, owners must ensure they get a copy of the valuation in writing.

Elaine Ferguson, Head of Customer Service at The Overseas Guides Company, adds: “Under the new CGT charge, the rates for individuals will be either 18 per cent or 28 per cent, according to their status as basic or higher/additional rate taxpayers respectively.” 

If you require more information or are based overseas and thinking about selling your UK property, it is advisable to speak to a specialist tax or financial advisor. 

Useful links:

https://www.gov.uk/capital-gains-tax/overview

https://www.gov.uk/tax-sell-property/what-you-pay-it-on

http://www.which.co.uk/money/tax/guides/capital-gains-tax-explained/

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