I have a client who is non-resident in the UK having lived and worked abroad for the last 7 years. He currently owns a property (and this is recognised as his principal private residence) in the UK that was his main home before he left to work abroad. Since his departure he has let this property out, receiving rents which have been included on his tax return accordingly. He is now planning to return to the UK but is not keen on returning to live in his former home and is considering selling the property in the very near future.
What are his best options? Should he sell the property before he returns to the UK or afterwards when he becomes UK resident again?
Should any other factors be considered?
Options for his principal private residence when returning to the UK
From 2015/16 onwards, capital gains tax is chargeable on disposals of UK residential property by non-residents. This means that capital gains tax is now charged on where the property is located rather than on where the seller is the resident. The charge applies to disposals of UK residential property after 6 April 2015.
The normal capital gains rules apply in the calculation the gain but it is only the gain arising after 6 April 2015 where the individual owns the property at that date. In your client’s case, he has owned the property in excess of 7 years so he held the interest at 6 April 2015. There are however three methods for calculating the gain but the default method will apply unless the taxpayer elects otherwise. In this case, should the default method be chosen then a calculation is made of the gain or loss which would arise on the disposal of the interest had your client acquired the property at market value on 5 April 2015.
If your client were to sell the property on his return to the UK without living in the property again then the capital gain would be calculated in the normal way using the original base cost with no reference to the value at 6 April 2015. This option gives the benefit of any private residence relief and letting exemption etc.
A further option is open to your client which he may wish to consider. Under the private residence relief rules should your client return to live on the property and occupy the property as his only or main residence, then if he later decides to sell the property private residence relief would be available. His period of absence from the UK during which he worked in an employment or office all the duties of which were performed outside the UK will attract private residence relief. Should your client do this potentially all of the capital gains will be relievable and there will be no capital gains tax to pay.
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This tax Q&A was published in July 2017 – please be aware that the information above may have changed in subsequent months. This note is written for the general interest of our clients and is not a substitute for consulting the relevant legislation or for taking professional advice.
(This content was originally produced by Croner Taxwise Limited and is reproduced with their permission)