Becoming non-resident and death have traditionally been some of the best pieces of basic Capital Gains Tax (CGT) planning. However, now non-residents will pay capital gains tax on sales of UK residential property.
Sadly enough, there are no valuation bands to determine the charge to be paid and there is no relief available from the charge aside from the main residence relief.
What is the rate of tax for non-resident individuals?
The rate of tax for non-resident individuals will be the same as for their UK counterparts i.e. 18% if the gain falls within the basic rate of tax and 28% if any part lands in the higher rate.
Should non-residents re-base the value of their property?
Yes, they may do so as the new rules are not retroactive. However, this may not be as simple as it seems.
This is because overseas UK residential property owners will have to answer questions on whether they should re-base and whether they should obtain a valuation.
What options are available to a non-resident for a future sale of their UK residential property?
Three options are available for them:
1. The default position is that the individual’s property is revalued at 5 April 2015 and only the increasein valuefrom 5 April to the date of the sale should be charged to capital gains tax. This may also involve revaluing the property. The disposal could then be many years into the future when the value at 5 April 2015 is forgotten.
2. An election is made to calculate the whole gain from purchase – as done with a UK resident. However, once the gain is established, it is apportioned on the basis of days between pre and post 5 April 2015 periods – with only the post April 2015 pro-rated gain being charged to capital gains tax. In this option, no valuation is required.
3. The taxpayer elects to tax the gain for the whole period of ownership with no re-basing no splitting the gain pre and post 5 April 2015. This would only be worthwhile if there is a loss accruing. Again, no valuation would be required here.
What is one of the most common enquiries raised by HMRC on the sale of land and buildings?
It is when the value of a property entered within a Tax Return is disputed. Surprisingly, this can even happen even if a professional valuation has been undertaken.
During these enquiries, District Valuation expert enters into negotiations with the Professional Valuer employed by the taxpayer while the client and the Tax Advisor wait fir the negotiations to be concluded.
What happens if a formal valuation has not been undertaken?
The Revenue makes it clear that that it is the taxpayer’s duty to value the property correctly and noting the general conditions of the property for future reference.
In some cases, they have even advised keeping the photographs of the site and keeping a record of all published sales prices of similar properties in the vicinity.
What does a post transaction valuation review process allow you to do?
A post transaction valuations review process enables taxpayers to agree a value with the Revenue once the disposal has taken place but before a Return disclosing a transaction is submitted.
This could be an attractive option for those non-residents already within the Self-Assessment regime.
As a result, a post-valuation could be made in case a property is sold on 1 May 2015 with the Return declaring that disposal is not due to be filed until 31 January 2017.
Please note that ICAEW has recently reported significant delays in processing these requests.
Therefore, it may be a good idea to factor in sufficient time for the process to conclude.
What if a non-resident is not within Self-Assessment?
In such a situation, they should submit a Non-Resident CGT Return within 30 days of the completion date.
Also, non-resident property owner who is not within Self-Assessment could encounter serious problems when they come to sell. This is because they may be subject to an enquiry that extends for several years with significant professional costs and an unexpected tax bill in absence of professional valuation and no detailed knowledge of the UK property market.
It is always advisable to obtain a contemporaneous valuation from a professional valuer – which is a small price to pay for greater certainty in the future.
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