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Taxation

Key issues for a UK resident selling overseas property

Key issues for a UK resident selling overseas property
Eleanor White

By Eleanor White

14 Sep 2023

Selling a property is a significant transaction and when it involves an overseas property, the tax implications can become more complex, but we can help.

A common error is not reporting in the UK the profit from the sale of an overseas property. A common assumption is because foreign tax is paid and the property is overseas, there is no need to report in the UK or pay tax here.

UK residents are generally taxed on their worldwide income and gains.

What does it mean to be a UK resident?

In simple terms, being present in the UK for 183 days in the tax year means you are a UK resident. However, even if you have been in the UK for less than this there are defined rules determining your tax residence status.

Definition of overseas property

Overseas property is any interest in real estate located outside the UK. As a result, it is irrelevant whether your ownership interest is by way of direct ownership in your own name, or indirect interest in the property which is held via a trust, a nominee or the foreign equivalent.

Domicile status

If you were born in the UK, you would be deemed UK domiciled. Living in the UK for longer than 15 years will also deem you to be domiciled in the UK. There are ways to change your domicile status, but these can be complicated.

Domiciled residents – CGT rules

If UK resident and UK domiciled, you will be taxed on all worldwide income and gains. Therefore, a property sale will need to be disclosed and tax paid in the same way whether you’re in the UK or overseas.

Non-domiciled residents and remittance basis

As a non-domiciled individual, you have the option of claiming the remittance basis. In this case, you are only taxable on your UK source income and any amounts remitted to the UK.  Thus, if the proceeds from the sale of the overseas property is not bought into the UK, this would not be subject to UK tax. Please note, that there are wider implications of making this claim and what constitutes a remittance. Professional advice should be taken before deciding to do this.

What about tax paid overseas?

When you sell a property overseas you will most likely pay tax in the overseas country. Many countries have double tax agreements with the UK, which means generally you will not pay tax twice. However, advice should be taken as each country has a unique tax treaty with UK, we are able to assist you with this.

Calculating my tax liability

The rules for calculating profits for tax purposes are often different overseas, so you should not assume that your overseas accountant’s calculations will be the same as the numbers you can use in the UK.

For UK tax purposes, as well as getting relief for the original purchase costs, you can claim allowance for enhancement expenses in addition to professional costs incurred on sale, but additional allowances vary in each country.

Most UK resident individuals benefit from an annual exempt amount of £6,000 (reducing to £3,000 in the 2024/25 tax year) which will offset the total capital gains realised in a tax year. The remaining gains will be taxed at CGT rates of 10%/18%/28%/20% depending on the level of an individual’s taxable income and the nature of the asset being disposed.

Equally, if the disposal generates a capital loss, this capital loss can be utilised the same way as any other capital loss would.

Exchange rate implications

Your self-assessment return is reported in GBP, however if you’re selling an overseas property, it is very likely this transaction will be in a foreign currency. As a result, you will need to consider the foreign exchange rates.

Due to fluctuating foreign exchange rates, it is possible this will have an effect on your gain or loss. For the purposes of calculating the CGT liability on the gain, HMRC will convert the foreign currency using the exchange rate as at the date of acquisition and disposal.

The 60-day rule only applies to UK property disposals

There is a requirement for individuals to report and pay CGT on the disposal of their residential property within 60 days of completion. Please note this does not apply to overseas properties, only UK property.

In summary

If you are a UK resident and sell an overseas property, you are likely to be liable to UK CGT, but rules may allow you deduct foreign tax credits from your tax liability. This should be reported to HMRC in your self-assessment return. Please contact our team of tax experts who can help you through the process.