Do you live abroad and own UK property? Even if you’re a non-resident in the UK for tax purposes, you’re still liable to pay Capital Gains Tax (CGT) on gains you make on UK property.
As a non-UK resident, you’re subject to the same reporting rules and tax rates as UK residents. This means that if you sell a UK property you own, you must report the disposal to HMRC within 60 days, pay any CGT due within the same period, and the disposal must be reported even if there is no tax to pay on the sale, you’ve made a loss, or you’re registered for Self Assessment.
But there is one significant difference. When it comes to working out the gain, you have a choice of three calculation methods, allowing you to select the one that will best help minimise your CGT tax liability.
3 Ways of Calculating Your Gain
- Using the property value as of 5th April 2015 (‘Rebasing’)
If you’re disposing of a property you’ve owned since before 6th April 2015, the default method for calculating any gain you’ve made is to use the market value of the property as of 5th April 2015.
To work out your gain using this method (known as ‘rebasing):
- Establish the value of your property as of 5th April 2015.
- Calculate the difference between the value of your property on 5th April 2015 and its value at the time of disposal.
- Deduct the following:
- Enhancement costs – any costs you may have incurred for improving the property since 5th April 2015.
- Incidental disposal costs – any legal costs you incur associated with selling the property.
- Using Time Apportionment
An alternative to rebasing when calculating the gain on a property you’ve owned since before 6th April 2015 is the Time Apportionment method.
To work out your gain using this method:
- Calculate your gain over the entire period you owned the property – from the date of acquisition to the date of disposal.
- Calculate the gain since 5th April 2015 as a proportion of the total gain.
- Deduct any enhancement and incidental disposal costs (see above).
The Time Apportionment method of calculating gain is particularly useful if you don’t have detailed records of property improvements, or in the event the property has not appreciated significantly since 2015.
- Working out the gain over the whole period
Rather than apportioning gain, this method involves calculating the gain or loss over the entire ownership period. While this method is unlikely to be beneficial if your property has appreciated since 2015 (as it could result in a higher CGT liability), it may be worth considering if the gain you’ve made on your property is minimal or if you’ve made a loss.
Which method is right for you?
Which calculation method is best for you will depend on your specific circumstances. Making the right decision will be crucial, so it’s important you consult your accountant or financial advisor for guidance and advice.
Calculating how much CGT you owe
Whichever calculation method you opt to use, you’ll have to pay CGT on any gain over your Annual Exempt Allowance (AEA), which all taxpayers are entitled to. Currently, this stands at £6k per person but will reduce to £3k per person from April 2024. Having deducted your AEA from your gain, you can then deduct any costs you may have incurred in improving the property and any expenses associated with the sale.
If you’re a higher-rate taxpayer, you’ll have to pay CGT at 28% on your gain. If you’re a basic rate taxpayer, you’ll pay18% or 28% depending on the size of the gain.
If you’re a non-UK resident who is in the process of (or considering) disposing of a UK property, it’s essential you make an informed decision about which calculation method to use. You’ll want to retain as much of any gain you’ve made for yourself, so taking professional advice will ensure you minimise your tax liability while staying fully compliant.
If you’d like advice on which calculation method best suits your circumstances, and an estimate of how much Capital Gains Tax you’ll be liable to pay, Inca can help.