Homes Abroad - The New Capital Gains Tax Rules

An important date for tax purposes is 6 April 2015. The private residence relief rules for capital gains tax (CGT) have been amended where UK resident individuals own a residence abroad. The new rules apply to disposals (e.g. sales) made on or after 6 April 2015.

In parallel, a non-resident CGT charge has been introduced with respect to capital gains arising on UK residential property disposals by non-residents.

Private residence relief rules

Capital gains arising on disposals of private residences are generally exempt from CGT. This relief applies whether the residence is located within the UK or abroad.

A property qualifies as a residence if it is occupied with some degree of permanence and continuity.

Holiday home abroad

So-called holiday homes abroad are most unlikely to qualify as a residence. In such cases, any gain made on a disposal pre-6 April 2015, or on or thereafter, by a UK resident individual, will precipitate a CGT charge, and the new rules will be of no relevance.

UK resident individual who spends time equally between their UK and overseas residences

Where sufficient time is spent in a home abroad on a regular basis over time (e.g. during the winter months every year), it may qualify as a residence. If so, and assuming that the individual also has a UK residence, a nomination needs to be made to determine which of the two qualifies as their main residence (in respect of which any capital gain on disposal will be CGT exempt).

Pre-6 April 2015, there was no minimum specified number of days which needed to be spent in the residence abroad to qualify for private residence relief. On 6 April 2015, this changed.

From that date, where an individual is resident in the UK but does not spend at least 90 days in the overseas residence in any tax year, any gain on sale attributable to such tax year will fall subject to CGT (at rates of 18% and/or 28%).

Example 1 - UK resident and sale of overseas residence

Harry owns a UK and overseas property, both qualifying as residences. He nominated his overseas residence as his main residence.

As at 6 April 2015, he has owned the overseas residence for 11 years.

In the tax years 2015/16, 2016/17, 2017/18 and 2018/19, he fails to spend the 90 days in each tax year in the overseas residence.

His gain on sale on 5 April 2019 was £75,000.

Under the new rules [[2.5/15] x £75,000] i.e. £12,500 falls subject to CGT (note: any gain attributable to the last 18 months of ownership are always exempt from CGT).

If the ‘old’ rules had applied no part of the gain would have been subject to CGT, irrespective of whether the 90 days requirement had been met for the property.

Emigration

On emigration, an individual will typically acquire an overseas residence, and may also retain the original UK property (which will, however, typically no longer qualify as a residence, probably only being used from time to time).

Post-5 April 2015, on disposal of the UK property any gain attributable to the period post 5 April 2015 will be subject to the newly introduced non-resident CGT charge (at rates of 18% and/or 28%).

Example 2 - Emigration and UK property sale

Bill emigrates on 6 April 2015, but retains his UK property (which is no longer a residence).

He eventually sells the UK property making a capital gain of £50,000 attributable to the period of ownership post April 5, 2015. Under the new rules, this gain is subject to the non-resident CGT charge.

If the ’old’ rules had applied, no part of the gain (pre or post 6 April 2015) would have been subject to CGT, as Bill was non-resident at the time of sale.

Practical Tip:

Check what impact, if any, the new rules will have on your CGT position on a sale of either your UK or overseas property, and also check the tax position in the country where the overseas property is located.