Qualifying for capital gains tax breaks as an expat is even more complicated following the latest legal rulings in the UK.
Capital gains for expats became an issue from April 2015 when Chancellor George Osborne reversed the law allowing non-residents to sell assets in the UK without paying CGT.
Since then, non-residents selling residential property in the UK have to pay CGT, but they do get some tax breaks.
The first step in working out CGT as an expat is considering whether you are non-resident.
The latest tax case, HMRC v James Glyn has overturned a court ruling and reinforced the tax man’s hand in trying to prove a property owner is tax resident in the UK.
90 midnight rule for expats
Glyn left the UK in 2005 to live in Monaco until 2010 after selling his share in a family property business for nearly £30 million, but HMRC claimed he was still tax resident in the UK and chased him for £5.5 million in unpaid income tax.
The Upper Tribunal rejected the First Tier Tax Tribunal ruling from 2013 that Glyn was non-resident for tax in the UK on appeal by HM Revenue & Customs (HMRC). The grounds were Glyn had not broken his personal ties with the UK by retaining a family home that he regularly visited in London during the time he claimed he lived in Monaco.
The decision is important to expats because:
- If an expat is ruled tax resident in the UK, CGT is due in tax years up to 2014-15, someone may believe they are non-resident but the facts of the case may indicate otherwise
- If an expat is ruled UK non-resident from April 2015, they still pay CGT on the sale of a home in the UK unless they comply with the 90 midnight rule.
This rule says an expat only qualifies for private residence relief and lettings relief on a CGT gain if they or their spouse spent 90 days living in a home in the UK.
The catch is if an expat qualifies for the 90 day rule, they may also be UK resident for tax, not only CGT on the disposal of a home, but on other income earned overseas as well.
To add to the confusion, another recent case before the First Tier Tribunal, Richard James Dutton-Forshaw v HMRC  UKFTT 478, a judge ruled that Dutton-Forshaw qualified for private residence relief and lettings relief to offset against CGT even though he only lived in a property for eight weeks.
Dutton-Forshaw was UK resident for tax throughout the time he owned the property.
The result of these cases is expats must take advice on their residence status even if they believe they no longer live in the UK for tax purposes – and for CGT, sometimes qualifying as a tax resident could mean paying less tax than if they were non-resident.
The confusion arises because the First Tier Tribunal did not consider how their decision impacted expats and an expat is not necessarily non-resident for UK tax but merely someone living overseas who still has ties with the UK.
To stay updated with more information. Follow us: