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Tax Relief Shake-up for Overseas Property Sales

People who live abroad and want to sell residential property in the UK now have to comply with new rules if they want to avoid paying Capital Gains Tax.

By Joanne Colwell, Corporate Tax Manager

Until recently non-UK residents have not been liable to Capital Gains Tax (CGT) on properties sold which are sited in the UK. But with effect from 6 April 2015, non-residents are now taxed on property disposals in the same way as individuals living here.

Principal Private Residence Relief (PPR)

As a result of these changes the Principal Private Residence relief (PPR) has also been revised. PPR is a valuable tax allowance which provides relief from CGT on gains made on the disposal of an individual's only or main home.

More than One Home

It is not uncommon for individuals to own more than one home. In this instance, provided each property has been occupied by the owner at some stage, a PPR election can be made to protect and exempt one of those properties from CGT.
With the changes to CGT for non-residents a simple PPR election would remove the property from charge and defeat the Government's objective in introducing the legislation.

Loophole Closed

Accordingly, the loophole has been addressed in the new legislation. Unfortunately, the change has wider implications which apply to non-UK residents disposing of residential property here and also to UK residents selling property abroad.

To qualify for PPR under the new rules:

  • the property being disposed of must be in the territory where the individual is tax resident.
  • if tax resident in a different territory to the property, the individual must have spent at least 90 midnights in the property in that tax year. Time spent in another property in the territory is allowed to count towards the 90 days, as is time spent at the property by a spouse or civil partner (although both people being there isn't counted twice).

It is important for individuals to determine whether they are resident in a territory for tax purposes if they are to apply the '90-day rule'.

Advice

For advice on meeting the criteria of these new rules and other tax implications of disposing of property in a country where you are not resident, please contact us.

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