Taxation on Capital Gains for Overseas Residents and Non-British Citizens in the UK
The United Kingdom has recently introduced changes to its Capital Gains Tax (CGT) system, affecting both residents and non-residents. Here's a breakdown of the key points:
- If you are a UK taxpayer and decide to live abroad for a period of five years or more, and then return to the UK within that period, any withdrawn retained earnings will be fully taxed the year you return, under the 5-year rule. This rule is an anti-avoidance measure to prevent tax evasion.
- The increase in CGT has made the rates equal to those charged on residential property sales. Currently, the rates stand at 18% for the lower rate and 24% for higher earners.
- The UK offers a tax-free allowance of £3,000 per year for individuals and £1,500 for trusts, against which capital gains must be offset. Any gains above this allowance are subject to CGT.
- If you live overseas, gains from selling property or land in the UK must be paid, even as a UK non-resident. However, non-residents can benefit from the annual exempt amount when calculating their CGT.
- The 5-year rule does not apply if you pay yourself a salary from your business, but no dividends. This allows you to continue paying yourself as you wish.
- From April 2025, long-term UK residents who leave and cease to satisfy the residency tests could be exposed to up to 6% exit tax, although only on assets in UK trusts.
- The UK currently does not have an exit tax for capital gains, but if you leave the UK and sell your assets as a non-resident, you would not be taxed on the gains.
- It's essential to separate your pre-departure profits from your post-departure profits when calculating your CGT. Pre-departure profits, the foreign-sourced income you earn before departing the UK, may still be taxable, whereas it's likely to be tax-free after your departure.
- Non-residents have a choice on how they report capital gains tax when selling property in the UK: rebasing method, time apportionment method, or paying based on their entire profit.
- The UK is planning to introduce changes to the taxation of wealthy residents, which has led to a notable exodus of millionaires from the country.
- It's important to note that the corporate tax rate varies between 19% and 25% depending on profit levels, and dividend tax rates also apply.
- Capital gains tax is paid on the gain when you dispose of chargeable assets, which include property that's not your primary residence, shares, assets held by a business, crypto assets, an inheritance that you later dispose of, and personal belongings worth over £6,000. The exception is if you have UK property, which is still treated as UK taxable income when you leave.
These changes aim to ensure that the UK remains competitive in attracting and retaining successful investors and entrepreneurs, while also generating more revenue from capital gains. It's recommended that anyone affected by these changes seeks professional advice to understand their tax obligations.
