Capital gains tax on overseas property

Capital gains tax on overseas property

When it comes to owning property abroad, many UK residents are unaware of their tax obligations, particularly regarding Capital Gains Tax on overseas property. This article will explain the key aspects of CGT on foreign property and how it affects UK taxpayers.

What is Capital Gains Tax on Overseas Property?

Capital Gains Tax on overseas property is a tax levied on the profit made from selling a property located outside the UK. As a UK resident, you are required to pay CGT on any gains from the sale of property worldwide, not just within the UK.

Who is Liable for CGT on Overseas Property?

UK residents are liable for CGT on overseas property if they:

• Own property abroad
• Sell or dispose of the property
• Make a profit (gain) from the sale

It's important to note that your residency status, not your domicile, determines your liability for CGT.

How is CGT Calculated on Overseas Property?

The calculation of CGT on overseas property involves several steps:

1. Determine the gain: Calculate the difference between the sale price and the purchase price of the property.
2. Account for allowable expenses: Deduct costs such as stamp duty, legal fees, and improvement costs from the gain.
3. Apply CGT rates: The tax rate depends on your income tax band (basic rate or higher/additional rate).
4. Consider CGT allowance: Each individual has an annual tax-free allowance for capital gains.

CGT Rates for Overseas Property

The CGT rates for overseas property are the same as those for UK property:

• Basic rate taxpayers: 18% on residential property
• Higher and additional rate taxpayers: 28% on residential property

Reporting and Paying CGT on Overseas Property

UK residents must report and pay CGT on overseas property within 60 days of completing the sale. This is done through the UK Property Account on the HMRC website. Failure to report and pay within this timeframe may result in penalties and interest charges.

Double Taxation Agreements

The UK has double taxation agreements with many countries to prevent individuals from paying tax twice on the same income or gains. If you've paid tax on the property sale in the country where it's located, you may be able to claim relief to offset this against your UK CGT liability.

Special Considerations

Private Residence Relief: If the overseas property was your main home, you might be eligible for Private Residence Relief, which could reduce or eliminate your CGT liability.Currency fluctuations: When calculating CGT, you must convert the purchase and sale prices to pounds sterling using the exchange rates at the time of each transaction.Inheritance: If you inherit an overseas property, your base cost for CGT purposes is typically the market value of the property at the time of inheritance.

Understanding and complying with CGT obligations on overseas property is crucial for UK residents. While the rules can be complex, being aware of your responsibilities and seeking professional advice when needed can help you navigate this area of taxation effectively. Remember to keep detailed records of all property transactions and related expenses to ensure accurate reporting and potentially reduce your tax liability.