UK Capital Gain Tax For Non-Resident
In this note, we summarize the new Government's policy for the taxation gains made by non residents disposing UK residential property. The new tax policy will focused on "property used or suitable for use as a dwelling"
Who will be affected by the new policy:
- Non resident individuals
- Non resident trustees
- Personal representatives of non resident deceased persons
- Certain non resident companies (generally those controlled by 5 or less person)
- Some UK resident individuals disposing of UK property when abroad
- Any of the above who are partners in a partnership
When the new UK capital gain tax starts to apply?
Capital gain tax on UK property for the non resident will start from 6th April of 2015. How does it affect previous UK residential owner?
Example: Mr. A bought a property in London on 2 Jan 2014 at £300,000. On 5 April 2015, Mr. A property worth £360,000. He finally sold the property on 10 February 2016 at £400,000.
The £60,000 gain from the day MR A bought the property until 5 April 2015 is not subjected to Capital Gain Tax. But the £40,000 gain starting from 5th April 2015 till he sold the property is subject to Capital gain tax
UK Capital Gain Tax Rate For Non Resident
- Trust/Trustee: 28% of the gain
- Non resident individual: 18% or 28% of the gain depends on your taxable income. If your taxable income is £31,785 and below, you will be subjected to 18% capital gain tax. Above that, you will be subjected to 28% capital gain tax
- Current Capital Gain Tax Exemption is £11,100
Example: Your taxable income is £20,000, and your gain from disposing your property is £12,100.
From your gains, deduct the tax-free allowance of £11,100. This leaves £1,000 to pay tax on.
You’ve used £20,000 of the basic rate band (£31,785 for the 2015 to 2016 tax year) against your taxable income, so you have £11,785 left
You have enough of the basic rate band remaining to cover your gains, so you pay Capital Gains Tax at 18% on £1,000. This means you’ll pay £180 in Capital Gains Tax.
Old UK Stamp Duty Land Tax (Before 4th December 2014)
- 0 - £125,000 > 0%
- £125,001 - £250,000 > 1%
- £250,001 - £500,000 > 3%
- £500,001 - £1,000,000 > 4%
- £1,000,001 - £2,000,000 > 5%
- Above £2,000,000 > 7%
Example: Buy UK property at £350,000, the total stamp duty you need to pay is £10,500
New UK Stamp Duty Land Tax (From 4th December 2014)
- 0 - £125,000 > 0%
- £125,001 - £250,000 > 2%
- £250,001 - £ 925,000 > 5%
- £925,001 - £ 1,500,000 > 10%
- Above £1,500,000 > 12%
- Buying above £500,000 under company name > 15%
Previously, SDLT was charged at a single rate for the entire price of a property. From 4 December, SDLT is charged at increasing rates for each portion of the price.
Example: Buy UK property at £350,000. Total Stamp duty you need to pay is £7,500
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The property capital gain tax in UK has been charged to the resident long before 6 April 2015. The new tax rules for the non resident is to create balance between overseas investor and local buyer.
The next question, is property investment in UK still attractive? Investing in London property will still be very attractive to investors due to the low supply and high demand issue which can offer high rental yield to cover their property installment.
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