We have invested in UK property as a ‘retirement fund’ but have heard that new capital gains tax rules may affect our returns. We have been offered a qualifying non-UK pension scheme (QNUPS) as an alternative. Would this help?
Stuart Ritchie, chartered financial planner & chartered wealth manager with expat financial advisers AES International, answered this question.
“Firstly, I thought I would provide an explanation of capital gains tax (CGT) and I apologise if you are already aware of this information:
“CGT is a tax which is payable on any gain (sale proceeds less purchase price) made on the majority of disposals of assets, whether the disposal occurs due to a sale of the asset or gifting. It is assessed in the tax year in which the gain is made and the rate at which it is paid is by reference to the individual’s total income. When added to income for the tax year, any part of the taxable gain which falls into the higher or additional rate band is subject to CGT at 20% (28% for property), with any part below the basic rate band subject to tax at a lower rate of 10% (18% for property). Each individual has an annual exemption per tax year below which gains realised will not be subject to CGT (for the 2016/17 tax year this exemption is £11,100).
“Therefore if your buy-to-let properties are sold when you are UK resident then the gain will be added to your income in the tax year and assessed and taxed as above (at either 18% or 28% of the gain). However, as you can see you would have £22,200 of gain that would fit in your annual CGT exemption and thus is not taxed.
“As of 6 April 2015, legislation was introduced that resulted in an extension of CGT to non-UK residents on disposal of UK residential property and I believe that this would be the changes you mentioned.
“The basics of this are that CGT will not apply to any gains relating to periods before 6 April 2015. Non-resident individuals qualify for the CGT annual exempt amount (£11,100 for 2016/17) but will be liable to tax on the gains at either 18% or 28% depending on their other UK income and gains. If the property was your principal private residence while you were in the UK, you may be eligible to claim private residence relief (PRR) and final period relief to mitigate the CGT payable. Similarly, if the property was rented out, you may also be able to claim lettings relief.
“My own thoughts on the use of a QNUPS is that it should be driven by the aim of providing for your retirement and not as a measure to avoid CGT. Recent HMRC anti-avoidance legislation can make any tax-driven QNUPS planning ineffective in the face of attention from HMRC as they are able to attack any transfer of assets into a QNUPS that is primarily or even partially for tax avoidance reasons. Therefore, a QNUPS would not be my recommended solution for this situation in spite of the previous advice you may have received.”