Is CGT for non-residents an opportunity for some landlords post Summer Budget?

by Readers Question

13:12 PM, 8th August 2015
About 3 years ago

Is CGT for non-residents an opportunity for some landlords post Summer Budget?

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Is CGT for non-residents an opportunity for some landlords post Summer Budget?

CGT has been introduced on UK property for non-residents from April 2015. This will apply to the increase in value from April 2015, not from the whole time of ownership.nonresident

It is possible for a UK citizen, currently UK resident, to become non-resident, fully in accord with HMRC criteria for non-residence, for the tax year Apr 2016 to April 2017.

If that UK citizen were a landlord and sold all his stock, acquired over many years, during his period of non-residence, would he not have to be treated as non-resident for CGT purposes, therefore attracting a charge based on the increase in value of his stock ONLY from April 2015?

Surely, this has to be the case?

The old situation was of a UK resident becoming non-resident for five years consecutive years to mitigate a UK CGT liability. There is no extra stipulation now to say that a non-resident once having paid the non-resident CGT (on the increase since April 2015) will subsequently have an extra liability of the CGT for the gain during the whole period of ownership if they become UK resident again in the future.

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Comments

KATHY MILLER

14:46 PM, 9th August 2015
About 3 years ago

So if we are able to relocate for 5 years aboard, sell everything.

We could then come back and set up a company and pay 18%. I bet they will close that soon. Second thoughts maybe not , many MPs own property!

Shakeel Ahmad

9:39 AM, 10th August 2015
About 3 years ago

You sell everything. Use or transfer the proceeds and when you are at Heathrow on your return after the five years period is over. You demand a Council property as you are home less.

One has to match the wicked ness with wicked ness that is thrown at us.

Mark Alexander

10:34 AM, 10th August 2015
About 3 years ago

I have asked my accountants to confirm these details.

However, I had already come to the conclusion that I am being forced to become a tax exile anyway. By doing so, I can elect to forgo my personal allowances and pay 20% tax on all taxable income, and get my 20% tax relief on finance costs. Effectively, for me, this leaves the status quo unchanged, i.e. I will not pay the tax levy.

However, I don't really want to live elsewhere. Whilst I dream of better climates I also have the usual ties to the UK .... ageing parents, family, friends, hobbies, business interests etc.

Nevertheless, it seems I may be left with Hobson's choice - http://www.phrases.org.uk/meanings/hobsons-choice.html
.

lancelot spratt

12:29 PM, 10th August 2015
About 3 years ago

Hello everyone and thank you for your replies.

It's a question of Capital Gains Tax here, not income tax.

Is it possible now, to become non-resident for just one year during which a disposal of property takes place and you pay the non-resident CGT on the gain in value since April 2015 (not the whole gain)?

It should no longer be necessary to leave for five years, as by becoming non-resident and paying the CGT on the increase since April 2015, one's duty to HMRC is fulfilled.

Mark Alexander

12:37 PM, 10th August 2015
About 3 years ago

Reply to the comment left by "lancelot spratt" at "10/08/2015 - 12:29":

I have a very similar discussion thread running here >>> http://www.property118.com/forced-to-become-a-tax-exile/77412/#comment-61715

BAD NEWS via my accountant.

I have just received this email ...

Hi Mark,

Further to our telephone conversation earlier today, I have detailed below the information requested:

1. Non UK residents may either pay tax as normal on their UK source income and provided they are an EEA National they are entitled to a UK personal allowance. Alternatively no personal allowance is claimed and certain types of income are classed as "excluded income" and tax is only paid at the basic rate. Unfortunately rental income does not fall within the definition of excluded income and therefore the rental income would be taxed at the higher rates of tax if appropriate.

2. Non UK residents CGT liability on the sale of residential property is based on the sales proceeds less the 5 April 2015 valuation. In addition non residents are required to report the sale of residential property within 30 days of the disposal, although any tax liability may still be paid as part of the self assessment tax liability.

The property may be sold at anytime while you are no resident, but if you become UK resident within 5 years the gain will be recalculated without the 5 April 2015 uplift.

There is a "Statutory Residence Test" which dictates whether a person is non resident and I will give you more information on this when required.

In addition, non UK residents must register for the "Non resident landlord scheme" otherwise the agent (or tenant if no agent) must deduct tax from the rents at the basic rate.

Remember, it will also be necessary to review the tax rules of the country you move to and you would need to consult a local agent to obtain this information.

It may also be necessary to review the UK's double taxation agreement with the country you move to.

With kind regards,

Neil

Neil Barlow FCCA ATT
For and on behalf of Pacific Limited

.

lancelot spratt

13:02 PM, 10th August 2015
About 3 years ago

Mark, thank you!

I read this too in the Tax Cafe book just out on CGT, but wasn't convinced this was a true interpretation.

It seems that HMRC is taking a sharp and closely considered view. It would have been little to them if they had left the 'grandfathered' opportunity for UK residents to leave for a year as this would have been a seal-healing hole with time.

I wonder whether this property CGT-tightening is a preface to a specific CGT for BTL properties in line with income tax. That is, I have a creeping fear that a BTL CGT could be sprung on us at an effective 45%?

I'm seriously considering an earlier exit from my portfolio, but the current 28% CGT already means a seven figure tax bill. So, if I stay in the UK, that's like giving up a NET income of £250,000 pa for five years for free outside the UK somewhere. Some of this CGT is actually a tax on compound RPI inflation. It's a bitter pill. When I started there was tapered CGT relief on long-held assets. The goal posts have been and continue to be on the move.

I know this story is not going to garner any sympathy from the public at large, but I've worked long, hard, had to make personal sacrifices for work and taken carefully-weighed financial risks. I've sweated with worry at night and been a highly responsive, responsible and moral landlord.

I think an exit strategy is needed.

Shakeel Ahmad

13:43 PM, 10th August 2015
About 3 years ago

@ lancelot.

The with drawl of indexation was started by Mr Brown under the pretext of low inflation so there was no need for indexation. It was he who also increased the period of five years from previously held three years.

It is not a question of garnering any sympathy. It is a realty. Again if it was a business & you decided to retire you would have got the retirement relief at !0%.

Besides, other reasons this one of the additional reason that letting property is not considered as a business.


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