UK stamp duty changes, capital gains tax changes will impact expat buy to let investors, so start planning your checklist now
UK stamp duty changes for buy to lets from April 2016
With the new UK tax year less than two months away, expats need to get their housing and going abroad checklists in order and stay on top of the new UK property taxes announced in 2015.
Top of the list for many will be the UK stamp duty changes, with a new 3% levy now being attached to expat and domestic buy to let and second homes. Whilst many commentators have suggested this will seriously impact the market, expat mortgage brokers Offshoreonline.org are more optimistic. Guy Stephenson, a spokesman for expat mortgage brokers offshoreonline.org said “Using the notional example of a house costing £350,000, historically, the stamp duty payable would have been £10,500, but this was reduced in the UK stamp duty changes announced by Chancellor Osborne in December 2014 to £7,500. The imposition of the new 3% levy is in many ways aimed at reinstating that revenue, with the tax take now rising to a one off payment at the time of purchase of £18,000 in this example.”
However, expat buy to let landlords have an important trick up there sleeves when it comes to mitigating the effects of the UK stamp duty changes – when they sell, assuming a profit has been made, the tax paid can usually be set against profit as a legitimate “buying cost”, so reducing any Capital Gains Tax due.
Capital Gain Tax has been payable on profits made on the sale of second and buy to let homes since April 2015. Again though, the news is not all bad here for expat buy to let investors. For a start, all expat buy to let property owners will benefit from the normal tax free allowance which is £11,800 for tax year 2016 – 2017. After allowable costs have been deducted, tax is payable at the lower rate of 18% on any gain under £31,900 in tax year 2016-17 and at the top rate of 28% for gains over this amount. That’s a considerable saving when set against a high earning UK resident, who could be liable for a marginal tax bill of 45% on any large gains over the basic rate threshold.
Finally, if you have lived in the house before moving abroad and renting it, you can use an accounting trick called “time apportionment” to take into account the period when the house was your main home, as during this time, no capital gains tax would have been due.
The last change announced in the budget does not really affect UK expat landlords – UK residents will lose their ability to reclaim tax due on tenant income at their highest marginal rates rate, if they are higher rate, i.e. 40% or 45% tax payers. This has certainly hit the headlines, but does not affect expat buy to let landlords.
Expat landlords can still set all of their interest rate costs against income, then add in the cost of repairs and maintenance to reduce their tax liability. Again, even though they are non-resident in the UK, the expat landlord will still have a personal tax free allowance, which for 2016 -17 allows him or her to earn up to £10,800 in rental income before tax is due.
As with all matters relating to tax, everyone’s position is different, and the devil is often in the detail, so the advice as ever is get professional advice, before you do anything and as an expat landlord, keep good records of all expenditure on your UK buy to let.