New UK Capital Gains tax to hit UK property owners in France
Many British expatriates living on the French Riviera retain UK property for one reason or another. You may be waiting for property prices to improve before selling, or want to be sure that life in France suits you first.
But is this the most tax efficient way of holding your capital? How well does owning this property fit into your overall wealth management?
Under current UK legislation, non-UK residents escape capital gains tax on UK assets if they sell after they leave the UK and remain a non-UK resident for five complete and consecutive UK tax years. If you return at any time during this period, you will pay the full amount of tax.
However, this will change from April 2015, when non-UK residents will start to be taxed on gains made on the disposal of UK property. This will apply regardless of how long you have been a non-UK resident and whether or not you return to the UK.
This measure was confirmed during the Autumn Statement in December, but until the government holds a consultation, the details won’t be known.
Under the current UK rules for residents, the chargeable gain is taxed at 18% or 28%. There is an exemption of £10,900 per individual. It is quite possible, however, that non-residents will be charged a different tax rate, perhaps without an allowance.
Another key pending issue is whether tax will be charged on the gain since acquisition or only on the gain from April 2015. The Autumn Statement and accompanying documentation referred to “future gains”, but confirmation is needed.
You may be affected by a second announcement in the budget, which is the change to the Private Residence Relief. The main home is tax free in the UK, and this relief basically gives home owners 36 months’ leeway to sell their home after they move out before they are hit by tax.
This grace period will be halved to 18 months, also from April 2015. Expatriates who wait until they have settled in France before selling their UK property would be particularly affected.
As a resident of France you also need to consider the local tax implications, since you are liable to French tax on your worldwide gains.
French capital gains on the sale of property, including social charges, currently ranges from 34.5% to 40.5%, depending on the amount of gain. France does provide some taper relief the longer you have held the property.
You will not need to pay tax twice, but you need to understand how the French and UK tax regimes interact and impact you.
If you rent out the property you need to consider the income tax implications. Rental income on UK property is taxable in the UK. While it is not directly taxed in France, it does affect your marginal rate of tax. There are more tax efficient investments available that can also provide income.
With the new UK capital gains tax not starting until 2015, you have a window of opportunity to review your assets, consider their tax efficiency and take steps to avoid tax where possible.
Tax involving two countries is very complicated, and how your assets are structured affects your wealth. You should consider your cross-border tax issues, as well as your welfare needs, and develop a bespoke, worldwide, wealth management strategy.
Any statements concerning taxation are based upon our understanding of current taxation laws and practices, which are subject to change. Tax information has been summarised; an individual is advised to seek personalised advice. For the latest developments, see www.blevinsfranks.com