I bought a property in the UK in my name while I was here. I am undecided whether to sell it or keep it – what UK tax considerations should I bear in mind?
As your UK property is UK real estate, you will generally remain subject to the UK tax regime in respect of the property. You should therefore seek specific UK tax advice, but some of the tax issues you may wish to consider are as follows:
Inheritance tax (“IHT”)
As Kelly explains in Question 3, even an individual who is neither UK domiciled and nor statutorily deemed to be domiciled here for tax purposes is liable to IHT on UK situated assets (and indeed on certain non-UK situated assets to the extent that their value is derived from UK residential property). The value of the property (subject to any allowable deduction for debt used to acquire the property) will therefore remain within your taxable estate for IHT purposes.
IHT is chargeable on death (at up to 40% to the extent that an individual’s taxable estate exceeds the nil-rate band, which is currently £325,000), on a lifetime transfer into trust or into a company (at up to 20%) and on a gift to an individual if the donor does not survive for seven full years from the date of the gift (at up to 40%, though less if the individual survives at least three years).
Income tax
If you decide to keep the property as a London home, you should not be liable to income tax on the property. However, if you rent the property (even for short periods while you are not using it), you will be liable to UK income tax at up to 45% on the rent received less any allowable deductions. It is worth pointing out that interest payments on a mortgage are only deductible at up to the basic rate of 20%. Assuming that you rent the property through an agent, the agent will be required to withhold income tax at 20%, unless you have registered with HMRC under the “Non-Resident Landlord Scheme”. Even where income tax has been withheld by a letting agent, you will need to pay any further income tax due (i.e. potentially a further 25%) from the net amount received from your agent.
Capital gains tax (“CGT”)
As an interest in UK land, the property will remain subject to the UK’s CGT regime even once you are non-UK resident:
- if you sell the property while you are still UK resident, you will be subject to the entire gain on the property (after deduction of purchase costs and capital expenditure); and
- if you sell the property once you are non-UK resident, broadly, you will be subject to the extent that there is a gain since 5 April 2015 or acquisition (whichever is the later).
Principal private residence relief (“PPR relief”) is potentially available where the property is (or has been) your only or main residence. PPR relief provides relief at up to 100%, such that where it applies to the entire period of ownership, no CGT is payable on any gain realised on the disposal. However, PPR relief will only apply to the entire period of ownership (enabling 100% relief) where:
- you have occupied the property as your main residence throughout the entire period of ownership; and
- for any period of ownership from 6 April 2015, none of the period of ownership falls within a “non-qualifying tax year” (or non-qualifying partial tax year).
If these conditions are met for some tax years but not others, only a proportionate part of the gain on the disposal will be free of tax. For example, if an individual owns a property for 10 years and they satisfy both of these conditions for seven years but neither of these conditions for three years, PPR relief would only be available at 70% (i.e. 30% of the gain would remain chargeable to CGT).
It is possible for an individual to “elect” for a property to be treated as their main residence for the purposes of PPR relief. Such an election must be made within two years of acquiring the relevant property and only one election is allowed at any one time (and spouses must make a joint election). Where an individual has made such an election, it is not necessary for the individual to demonstrate that the property was their main residence for the relevant period, though it is still necessary for the individual to occupy the property as a home (i.e. it cannot be rented to a third-party). Although an election can assist with demonstrating that a property is an individual’s main residence, an election will not apply to the extent that any period is a non-qualifying tax year or non-qualifying partial tax year.
Non-qualifying tax years
Any tax year from the tax year 2015/2016 onwards will be a non-qualifying tax year for an individual unless the individual meets one of the following conditions:
- they (or their spouse) was UK resident for the relevant tax year; or
- assuming they (or their spouse) were not UK resident that tax year, they spent at least 90 days in the property in that tax year (“the 90-day test”).
For the purposes of the 90-day test, an individual spends a day at a property if either: - they were present at the property "at the end of the day"; or
- they were present in the property for some period during the day and the next day, having stayed overnight in the property.
In addition, a night spent by an individual's spouse in the property may be counted as a night spent by the individual in that property (although a night cannot be counted twice).
Therefore, assuming that you have used the property as your main residence during your period of residence in the UK, it is worth considering carefully whether you will meet the above criteria in future tax years as each subsequent tax year that is a non-qualifying tax year will erode the extent to which PPR relief will be available upon an eventual sale or disposal of the property.
Senior Executives: thinking of relocating to the UK?
Moving on from the UK
- I have Indefinite Leave to Remain (ILR) in the UK having permanently resided here to work as a C-suite executive for a number of years. I’m considering a new employment opportunity abroad. What’s the impact on my ILR if I leave the UK for this new role?
- Your employer has indicated that they no longer require you to work in the UK – what should you think about?
- By becoming a non-resident in the UK, do I escape the tax net?
- How will my cryptoassets be affected if I were to move country?
Please do contact any member of our Sen Ex Advisory Group to suggest a question or to find out more about how we can help.
Senior Executives: thinking of relocating to the UK?
We answer common questions raised at key stages of the relocation process.
