- Essential Tax Information

Selling Your Home After You've Left the UK

It's a pretty common scenario. You own your own home in the UK, which you occupy as your main residence. At a later date you decide to emigrate, either permanently or for a temporary period. During this period overseas you may well let the property out, but there is likely to come a time when you decide to sell it.

The key question is whether the UK taxman will want a slice of any profits, and if so how much will they want.

More up to date info on this subject is contained in our guide Non-Resident & Offshore Tax Planning

The fact that any proceeds were reinvested into either a new residence or even a business operation is irrelevant from a UK perspective. A chargeable gain would arise on any the disposal of the property based on the uplift in value since acquisition and after taking account of indexation relief (if acquired before April 1998) and any expenses incurred on the property.

There are broadly speaking two key options for reducing or eliminating the gain.

Non residence

Firstly there is the non resident status.

An individual who is non UK resident and ordinarily resident is outisde the scope of UK CGT on his worldwide disposals. This therefore means that no gain would be charged on a disposal of the UK property.

In order to satisfy this you would need to ensure that your visits to the UK are less than the 90 days pa (on average) requirement.

If you left the UK before 17 March 1998, the anti avoidance provisions do not apply, and to be exempt from UK CGT, it is only required that you are non resident/ordinarily resident during the tax year of disposal. If you left the UK after 17 March 1998 you would need to ensure that your period of non UK residence during which you sold the property was for at least five tax years.

Therefore if you are non UK resident and satisfy these provisions the use of the property is irrelevant and you would be automatically exempt from UK tax. One point you would need to watch out for is whether you are established as a resident of another country. If you are, you would need to consider their tax rules, and in particular whether they themselves would tax the gain.

If you have been overseas for more than five years but are looking at returning to the UK, it would make sense to look at whether you should bring forward a disposal date to crystallise the gain before you become UK resident.

Even if you did not want to actually dispose of the property before you returned to the UK (for example you may want to stay there on your return) you could consider a transfer of the property to a close family member/ friend or to a controlled company. The benefit in this is that it would uplift the base cost to the market value at the date of the transfer. On a future disposal of the property any gain that would arise (and be subject to UK tax) would be vastly reduced. In fact if a disposal was shortly after your return the gain could in any case be covered by the annual CGT exemption.

If you were to remain overseas for less than five years or if you were to retain the property and dispose of it after becoming UK resident, some valuable reliefs would be given if this was your principal private residence. The CGT annual exemption would also be available to offset any gain, but this is minimal (currently £9,200 pa).

The main relief available in this case will be principal private residence ('PPR') relief.

PPR relief

The extent of PPR relief will depend on the occupation of the property.

Where an individual has occupied a property as a residence for only part of his period of ownership then a proportion of the capital gain resulting on the disposal of the property is exempt. This is calculated on the following basis:

Capital gain multiplied by Period of occupation Divided by Period of ownership

In addition to the period that an individual actually occupies a property as his residence, when calculating the period of occupation there are certain deemed periods of occupation which are allowed to be taken into account.

The last 36 months of ownership would be deemed to be occupied by you irrespective of whether you actually occupied the property during this period. This applies to everyone. So if you occupied a property as a main residence, then went away for three years and sold it exactly after three years of absence the gain would be exempt under the PPR relief provisions whether you were UK resident or not.

If your absence was for more than three years you may also be able to claim the entire period you worked overseas as deemed occupation of the property. This will apply where you lived in the property both before and after your period overseas, where you went overseas to work under a full time employment, and where you had no other residence overseas.

This is only likely to be the case where you occupy property overseas either as employer provided accomodation or under a form of licence (ie no tenancy). If you did have a residence overseas this exemption wouldn't be available although the Revenue may accept an election from you to nominate the UK property as your main residence. In either of these two cases this would mean that your UK house would still qualify for full PPR relief when you sold it. However even if it didn't more reliefs could be offset.

As well as principal private residence ('PPR') relief where a property is let you would also be able to claim lettings relief to reduce the gain. .

Lettings relief provides for an exemption from capital gains tax for that part of the gain attributable to the letting in so far as it does not exceed the lower of :

Therefore you would obtain partial PPR relief as well as lettings relief. Dependent on the gain arising and the length of ownership/previous occupation, this may exempt the remaining gain in full.

Therefore whether you dispose of a property as a non UK resident or as a UK resident you should be able to claim significant relief. If your period abroad lasts at least five tax years, and the overseas regime does not tax the gain, it would make sense to aim for a transfer to a connected party to achieve an uplift in the base cost. Even if you don't meet the five year requirement as a former main residence you can qualify for some significant reliefs.