New UK Capital Gains Tax for expats on sales and disposals of UK residential property

LONDON - May 20, 2015 - PRLog -- Changes to the way Capital Gain Tax (CGT) is payable by expats disposing of UK residential property came into force just over one month ago, but seem to have passed unnoticed by many UK expat homeowners living abroad.

Previously, expats selling their main family home in the UK could usually escape capital gains tax on any profits, but that is now no longer necessarily the case, especially if the main family home has been let out for long periods.

Under the new rules, expats owning UK property which is subsequently sold for a profit may have to pay UK Capital Gain Tax at a rate of 18% or 28%, depending upon personal circumstances. However, the new tax is only payable on gains after 5 April 2015, so for many expats, an early priority will be to establish a reliable valuation of their properties now. The Inland Revenue has prepared a set of questions and answers which can be viewed at https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/413988/capital-gains-tax-non-uk-res.pdf

As with all valuations submitted to the Inland Revenue, the onus is on the seller to ensure the reliability of any valuation so whilst an estate agent’s estimate might be acceptable, a safer option would be to use a chartered surveyor or get two valuations.

There are still some ways to avoid having to pay some or all of the tax – if family members are living in the home or if you stay more than 90 nights per tax year in it, you will generally be regarded as UK resident and as such qualify for the normal private residence relief. Equally important will be the need to keep a careful record of repairs costs, as these can usually be offset against any tax due. Gains can also be set against the usual annual CGT exemption, which for tax year 2015 – 2016 is £11,100.

Meanwhile, for UK residents looking to retire to Portugal and perhaps taking out a Portuguese euro mortgage (http://www.offshoreonline.org/euro-mortgages/italian-span...) to buy a home, the position remains very positive. Under the Portuguese “non habitually resident” rules, it is possible to move to Portugal and pay absolutely no tax on your pension, whether you decide to take it as one lump sum or as a regular income. Seen in the light of new UK pension rules introduced in April 2015 allowing a far more flexible drawdown of private pensions in particular, for some, this could be a very attractive option.

The scheme works because the United Kingdom has a double tax treaty with Portugal. These tax treaties mean you do not have to pay the same tax twice, in this case in the UK and in Portugal. Double tax treaties stipulate that your personal pension, which includes employer schemes and personal accounts such as self-invested personal pensions and your state pension, are only taxable in the country in which you live.

UK residents moving to Portugal who successfully qualify under the non-habitually  residents regime can therefore take virtually all foreign sources of income, such as pensions, tax free for the first 10 years.

To qualify, you need to register as a non-habitual resident with the Portuguese tax authorities, and after 10 years you will be taxed at Portugal's marginal rates.

As with all taxation matters, you are strongly advised to seek professional advice before taking any decisions.  For information on Portuguese international euro mortgages (http://www.offshoreonline.org/euro-mortgages/euro-mortgag...), please visit Offshoreonline.org (http://www.offshoreonline.org)