Until now, foreign investors haven’t had to pay CGT when selling property that is not their main residence. The UK Treasury and Her Majesty’s Revenue and Customs (HMRC) first published draft legislation in December 2014 to bring the situation into line and equalise the payment of CGT for residents and non-residents.
Part of the reason for the change is attributed to the significant growth in London property prices, much of which has been boosted by international buyers. Figures from Knight Frank’s International Residential Investment in London report, for example, indicate that 49% of purchases in Prime Central London alone are made by overseas investors.
The new legislation also means it will be more akin to the situation for non-resident investors in other countries, such as the US, France and Spain.
Who will be affected?
The change in legislation affects non-resident individuals, trustees, partners and non-resident companies who sell or dispose of UK residential property.
It applies to all sales of “property used or suitable for use as a dwelling”, which includes properties in the process of being constructed or adapted for use, such as off-plan buys.
How much will the gains be?
CGT applies to the amount of gain on the property from 6 April 2015 onwards and can be worked out in two ways.
Either by establishing the value of the property as of 5 April 2015 – a process called rebasing – and calculating the amount of gain over that value. Or by apportioning the whole gain on the time you’ve held the property after 5 April 2015, compared to the total time you’ve owned it.
The amount paid will also depend on the current rate of CGT. It’s worth knowing this has already risen in the last few years, so in theory, it shouldn’t have an immediate effect when it does come into play.
The value of getting a Market Valuation Report now
Whilst you can’t get out of paying CGT, there are practical ways you can tackle it
INHOUS suggests that one key way which is already proving popular is to get a Market Valuation Report. It’s highly beneficial to know the current value of properties, especially when deciding whether to opt for a re-based valuation or a time apportioned approach for gain calculation.
The Managing Director at INHOUS, David Johnson, has seen an increased demand for RICS accredited Market Valuations in recent weeks: “Knowing a property value now could help reduce the risk of being hit by a higher gain when selling. Plus, a current value should be accepted as a fair valuation.
It is a wise move for a non-resident to take such action now. Although a fee is payable for such a valuation report, it could potentially save you thousands of pounds when you do eventually opt to sell your property.”
A Market Valuation Report can only be carried out by RICS Registered Valuers. The detailed and internationally recognised report offers much more than an estate agent valuation and is the only appropriate way to acquire an accurate market valuation.
