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Tax rules for offshore home owners plug CGT loophole

9 April 2014

A massive capital gains tax loophole that has encouraged expats and non-resident property investors to make profits from renting homes in the UK is about to be closed.

Chancellor George Osborne has published proposals to bring the taxing of capital gains for offshore home owners in line with the rules everyone who lives in the UK has to follow.

Until April 2015, expats and non-residents do not have to pay any capital gains tax on the disposal of a property.

This has led many expats to leave the UK and sell up massive property portfolios without paying any CGT and is also one reason why so many foreign buyers snap up property in London as an investment.

From April 6, 2015, property values will be rebased for offshore owners as gains from that date will be taxed.

The Treasury has floated some ideas about how the tax rules will work in a consultation document.

However, the new law will:

• Make sure all property owners pay the same rates of CGT regardless of where they live

• Give expats and non-residents the CGT annual exempt allowance – which will be £11,100 from April 2015.

• Expats will benefit from principle private residence relief (PPR) if the property sold was their main home, including the 18-month grace period to sell the home before CGT is charged

• The rules not only apply to individuals but partnerships, companies, trusts and other ownership structures

Its likely lawyers handling the sale with withhold CGT at the top rate (28%) after reliefs and the annual allowance are deducted.

Sellers will then have to declare their income to HMRC to pay the lower rate of CGT (18%).

The new proposals cover second homes, buy to lets, houses in multiple occupation (HMOs) and furnished holiday lets.

“The government does not believe that it is right that UK residents pay capital gains tax when they sell a home that is not their primary residence, while non-residents do not,” said David Gauke, Exchequer Secretary to the Treasury
“Similarly, we do not believe that it is right that UK companies are subject to tax on gains that they make from disposals of residential property, whereas non-residents are not. It is important for the integrity of our tax system that when gains are made from UK residential property, UK tax is paid.”
The CGT for non-residents consultation is open to June 2014.