Tuesday, 28 April 2015

UK BTL Property Investors Living Overseas Need to Act Fast Following Changes to CGT Rules

Capital Gains Tax now reaches beyond the UK's borders


This April not only saw changes to legislation regarding fire safety in tenanted properties - Capital Gains Tax for non-residents has also changed.

For years, Capital Gains Tax (CGT) didn't apply to those who were selling property assets while living abroad. Investors, landlords and developers were able to enjoy the freedom to sell property with a greatly reduced level of tax - until this financial year.

From April 2015 (i.e. now), CGT has been changed - and somewhat quietly. Those living abroad are now subject to the same taxes as their UK-residing counterparts with gains in property value now taxed for all residential property sales in the country by HMRC.

The implications of this may not be immediately clear to investors, developers and landlords; it's important that everyone who owns property investigates the impact this will have on their business. It is all too easy to disregard the importance under the assumption that no property sale is planned in the near future.

The Impact


Consider an investor who owns one tenanted property that was purchased in 2010 for £200,000. If the value of the property is now £220,000, £20,000 will be taxable under this new rule by HMRC that would not have prior to April 5th. A large impact on investment returns over the 5 year period that otherwise would not have occurred.

Fortunately, providers of purpose built student accommodation, nursing and care home owners, and owners of building land will not be affected by CGT changes at this time.

The Resolution


While there is no way to (legally) avoid this tax, it is possible to mitigate some of the damage to investment returns by planning ahead. The most effective way to reduce losses is to have properties valued as soon as possible.

As tax is only applicable to gains from April 2015, having your property valued now will ensure that you are able to reduce the potential amount by only paying for increased value from April 6th, and avoiding tax on gains prior to this date - otherwise there is a possibility that you will be charged the new rate for all gains from purchase.

To return to our hypothetical situation - if the property was worth £215,000 before April and is now worth £220,000, CGT will only apply to the £5000 increase as opposed to the full £20,000. It's far safer to be able to prove this with a legitimate valuation than to risk being taxed on the full amount for the sake of a simple valuation.

At David Phillips, our business is making the most of your investment. We keep on top of current legislative changes to ensure our customers understand how changes in the market will affect them.