Some UK solicitors have failed to inform clients of changes in UK legislation from April 2015, resulting in unexpected late payment penalties from HMRC for failure to complete a form following the sale of their UK property.
Recap of the new legislation
Prior to 6th April 2015, overseas investors and British expats were not required to pay Capital Gains Tax (CGT) on the sale of residential property in the UK, providing that they had been non-resident for 5 years. New legislation was introduced on 6th April 2015 that removed this tax benefit.
Since 6th April 2015, any gains are subject to CGT for non-UK residents. The rate of CGT for non-residents on residential property is, as for UK residents, determined by taxable UK income i.e. 18% basic rate band and 28% above, charged only the gain.
Reporting the gain and paying the tax
You must fill out a Non-Resident Capital Gains Tax (NRCGT) return online and inform HMRC within 30 days of completing the sale.
Those who do not ordinarily file a UK tax return must pay the liability within 30 days. Once you have notified HMRC that the sale has taken place, a reference number is given to make payment.
As a French resident you must also declare to the French tax authority.
The Double Taxation Treaty between the UK and France means that you will not be taxed twice as you will be given a tax credit for any UK CGT paid, but you will be liable to French social charges on any gain.
There is little to mitigate French tax on the sale of property that is not your principal residence. So, it is important to shelter the sale proceeds and other financial assets wherever possible to avoid unnecessary taxes in the future.
One easy way is by using a life assurance policy, a Contrat d’Assurance Vie, which is the favoured vehicle used by millions of French investors. Whilst funds remain within the policy they grow free of Income Tax and Capital Gains Tax. This type of investment is also highly efficient for Inheritance planning, as it is considered to be outside of your estate for inheritance purposes and you are free to name whoever and as many beneficiaries as you wish.