Coronavirus has caused extraordinary disruption to lives around the world, writes Max Porter, private client director at ATC Tax.
As national lockdowns begin to soften and governments tentatively hint towards a return to international travel, thousands of UK expats will be looking to accelerate their plans to return home, particularly if they’ve lost their job or want to be closer to family again.
However, moving back to the UK can be a complicated process and might impact finances more than clients think, and capital gains tax (CGT) is no exception.
The bill upon return to the UK can be hefty but advisers can make sure individuals don’t pay more than they need, here are the most important things to keep in mind while doing so.
Advisers first need to identify and recommend to clients which assets should be sold before they become a UK resident again.
Generally, selling an asset when a client is still a non-resident makes them exempt from a UK CGT charge, so selling the assets standing at a gain allows an individual to hold on to the profit without being taxed in the UK.
With this approach it will be important to consider the local country rules on CGT and temporary non-residence rules – discussed in more detail below.
On the other hand, advisers should ask clients to consider holding onto assets standing at a loss until they’re a UK resident.
Individuals can report a loss on a chargeable asset to HMRC when UK resident, which can be offset against gains in turn to reduce the total taxable gains.
These ‘allowable losses’ can allow clients to have a smaller CGT bill when they return to the UK and possibly carried forward to future years.
Non-resident capital gains tax
Recently-expanded non-resident capital gains tax (NRCGT) means that non-UK residents are subject to UK tax on gains arising from direct or indirect disposals of UK land and interests in UK property-rich entities.
As such, advisers should make clear to clients who plan to return to the UK to consider selling any UK property as a non-resident, as it may be more beneficial from a CGT perspective compared to selling as a UK resident.
A sale of UK property must be reported, and CGT paid to HMRC within 30 days of completion, so it’s important individuals speak to a tax adviser so they can understand their potential tax position. As it can take some time to sell a property, advice should be taken in good time to act on any planning opportunities.
Principal private residence relief
Advisers should also highlight that clients may qualify to receive principle private residence (PPR) relief if they’re selling their home as part of their return to the UK.
PPR protects an individual from UK CGT but the relief only applies if the property has been occupied by the individual as their only, or main, home.
Relief may also be available for periods of absence under the deemed occupancy rules.
Additionally, married couples and those in civil partnerships can only have one main residence between them. Advisers should make sure to bring this to the attention of their clients.
Temporary non-residence rules
Another implication of CGT is temporary non-residence, which generally applies if a client has only been based away from the UK for less than five complete years.
The rules around this are quite technical, so advisers should look to understand their client’s circumstances.
One of the downsides of temporarily being a non-UK resident is that sales of assets made while non-resident may become taxable when UK residence resumes.
Local country CGT implications
Advisers should also ensure clients are aware of the CGT tax rules of the country they’re based in to avoid any unwelcome surprises.
Some popular destinations for UK expats such as Hong Kong and Dubai have no CGT so selling off investments before a client returns can save them thousands of pounds.
On the other hand, countries like Australia have exit charges on assets standing at a gain. Clients may not have been aware of the differences in CGT tax rules, so it’s important to make them clear as soon as possible.
While not paying anything above what they need to on their capital gains tax is important, advisers must ensure they account for the unique financial situation and plans of every client.
Having a clear capital gains tax plan that they’re comfortable with and understand as part of a wider strategy for a smooth return to the UK can give them much-needed peace of mind.
This article was written for International Adviser by Max Porter, private client director at ATC Tax.