The impact of recent UK tax changes is very serious for expats owning UK property that was previously their family home. So much so that selling the property may seem the only sensible option for many.
Since 2012 the UK Government and taxman’s focus on UK property has been relentless, with the introduction of new taxes and the re-engineering of existing taxes. These have been introduced on the purchase, sale and ongoing ownership of both residential and commercial property – owned privately, by a company or trust – by residents, non-residents and non-domiciled owners.
What are the timescales for planning?
The tax point date for property transactions is normally not completion, but exchange. With 102 days being the average timescale between listing a property and exchange, clients contemplating their UK property needs and who are mindful of tax, may have but months to plan.
What are the latest changes?
The main changes, to become effective on 6 April 2020, are the reduction in the final period exemption and restrictions on lettings relief.
A home owner is liable to tax on capital gains, i.e. gains net of any principal Private Residence Relief (PRR) they are eligible for, if they have occupied the property as a main residence at any point during ownership. In effect, PRR relief is intended to protect main homes from Capital Gains Tax (CGT). Currently, there is no CGT if you sell a property that you have lived in, as your main residence, throughout the period of ownership. In instances where you have lived in the property at some point, but not for the full duration of ownership, the last 18 months (as a proportion of a gain) are currently considered to be automatically exempt, known as final period relief. From the 6 April 2020 this will reduce to nine months in most instances. Before 2015 this was a more generous 36 months.
Letting relief changes
Another change from April 2020 involves second home owners who rent their property following a period of occupation, known as ‘lettings relief’. Typically, PRR would be claimed for the period of occupation plus the last 18 months of ownership and letting relief would be claimed for the period when the property was let. The latter is a valuable relief that currently provides up to £40,000 of exemption (£80,000 for a couple) to people who let a property that had previously been their main residence. This will only remain available for those who live in their own property and let out part of it simultaneously.
Let’s look at an example
For a non-resident, disposing of a UK property that they once lived in as their private residence, having rented it out in their absence, there is a lot to think about.
Assuming a gain of £125k since 6 April 2015 (until then UK residential property gains weren’t chargeable for a non-resident), joint ownership and the annual exempt amount of £12k per person used elsewhere, the difference for exchange on 5 April 2020 compared to 6 April 2020 is as follows, where the full amount of lettings relief is available.
How can AAM Advisory help you?
Contact your AAM wealth manager now or email [email protected] to arrange a no obligation meeting to discuss how we can help you can mitigate your tax liabilities.
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