Capital gains tax for non-residents can sometimes be confusing. Prior to April 2016, expats could relocate for a full 12-month tax year and then exclude themselves from the need to pay capital gains tax to the HMRC.
With this change now in place, even experienced expats are finding they are liable for UK capital gains tax, so how does it work and what affect could it have on your savings and wealth?
Capital Gains Tax: The Basics
It is important to determine which countries you are liable to pay taxes to. This will be determined by your residence and domicile status, and also the location of the assets you are selling.
Assuming you’ve then determined you are liable to UK capital gains tax, you will pay 28% of the profit made on the sale of the asset for the value above £11,300. All assets, and not just property, are included and taxed at this basic rate.
How Foreign Assets are Taxed
It is important to remember that any assets that are physically located outside of the UK could also be subject to local taxation. The taxes that will apply to your capital gains will vary from country to country; many countries will have signed double-tax treaties with the UK, meaning you will only be liable to a single taxation (at the higher rate of the two countries).
To review the countries that have current double tax treaties in place with the HMRC, visit this guide from the HMRC.
Where capital gains tax is concerned, the purchase date can impact when and where you will be liable for taxation. In many cases, if the asset is acquired after you’ve left the UK your taxes will be liable to your new country rather than UK tax law.
Qualifying for Exclusions and Reductions
Expats would previously benefit from being able to move abroad for a whole tax year and that would entitle them to relief on their capital gains tax bill. However, the new rules have increased this to five years.
It is crucial to note that these rules apply regardless of your residency and are not directly tied to your status for paying income tax.It is perfectly possible to be paying income tax in France and remain liable to UK capital gains tax for non-residents.
There are, however, exclusions and exemptions that may be relevant to your personal circumstances and these could include (but are not limited to):
- Gambling winnings
- Inherited property
- Certain classic cars
- Injury compensation claims
- Legal compensation claims
- Business incorporation relief
- Holdover gift relief
- Entrepreneurs relief
If you are unsure of whether or not your assets are liable to tax, we’d advise speaking to an expat tax planning specialist with a thorough understanding of UK capital gains tax.
With changes to the rules in place since 2016, it is now more important than ever to carefully consider asset sales as part of your financial planning and wealth management process. In order to determine the right time to sell an asset and the taxes you could be liable to pay, it is important to consider:
- When you purchased the asset
- Where you purchased the asset
- Where the asset is physically located
- The profit made when selling the asset
Capital gains tax can represent a significant liability when it is not managed appropriately, and so it is a key factor to consider during wealth management and financial planning processes. It is important to consider the individual liabilities, reliefs and allowances for the members of your family before reaching a decision of when to sell a valuable asset.