Capital Gains Tax (CGT) for Dubai and UAE Residents: Selling UK Property
Are you a Dubai / UAE Resident looking for advice on Capital Gains Tax on property held in the UK?
Our guide below explores the CGT implications for residents of Dubai and the wider United Arab Emirates (UAE) when selling UK-based property
Capital Gains Tax (CGT) for Dubai and UAE Residents: Selling UK Property
Are you a Dubai / UAE Resident looking for advice on Capital Gains Tax on property held in the UK?
Our guide below explores the CGT implications for residents of Dubai and the wider United Arab Emirates (UAE) when selling UK-based property
Call: 0800 0016 878 - Email: info@thetaxfaculty.co.uk
(Please note, non-UK callers may need to call 0207 101 3845 if your line cannot connect to our 0800 number)
Guide on UK Capital Gains Tax (CGT) for Dubai and UAE Residents: Selling UK Property
Introduction
The global allure of UK real estate is undeniable. From the historic streets of London to the scenic countryside, many UAE / Dubai residents have invested in UK properties.
Similarly, many UK residents have moved to Dubai for the benefits of a tax-free wage and multicultural lifestyle and find themselves selling their previous UK-based property after they leave the UK and become residents of Dubai.
However, when it's time to sell, understanding the capital gains tax implications is crucial. Let's dive into the details.
How we can help
This page aims to clarify the Capital Gains Tax (CGT) consequences in both the UK and the UAE. A recent client from Dubai initially contacted us with the expectation of a tax bill of over £200,000 on the sale of their London flat. Once we had taken all of the information and worked through the required CGT computations, the final tax payable was a little over £12,000. Quite a success, all through our experience and expertise in such matters.
Further clients located in the UAE have recently gifted property worth over £8 million to UK-based family members with the expectation that a large CGT liability would become due. Our computations showed that zero CGT liability was due as a result of the transfer of the property.
To see if we can help you in a similar way, why not contact us for a free consultation? Call us free on 0800 0016 878 or email us at info@thetaxfaculty.co.uk for more information.
Please note, non-UK callers may need to call +44207 101 3845 if your line cannot connect to our 0800 number.
1. What is Capital Gains Tax (CGT)?
Firstly, let’s clarify what CGT is. Capital Gains Tax is levied on the profit made when selling an asset that has increased in value. For our context and the purpose of this guide, CGT is based on the profit derived from selling UK residential property.
Key Takeaway: CGT focuses on the profit, not the total sale price of the property.
2. Non-UK Residents & Capital Gains Tax
Starting from April 2015, all non-UK residents, including those from Dubai and the wider UAE, are required to pay CGT on gains from selling UK residential property.
As with all CGT on gains from UK property, the amount of CGT liability which is due will depend on the profit made on the sale, any exemptions which may be due and the rate(s) at which the capital gain is then taxed.
Profit: In simple terms, this is the selling price of the property, less any allowable deductions such as purchase price, incidental costs of acquisition / sale and any capital expenditure.
Exemptions: There might be reliefs and exemptions available, depending on your circumstances.
Rate: The rate(s) at which you are taxed depends on several factors, including your annual income and the amount of the gain. For residential property sales the gain will be charged at 18% or 28%, or a combination of both. See our CGT Rates Example for more information on this aspect of the CGT computation.
Pro Tip: It is recommended that you consult with a specialist tax advisor to understand your specific rate and any possible reliefs to which you may be entitled.
CGT Rates Example:
Mrs A has capital gains of £70,000 on the sale of a UK property. After deducting the £6,000 annual exemption, this gives Mrs A a capital gain of £64,000.
Mrs A earns £35,000 before tax during the year of disposal of the residential property and there are no other factors which affect her tax position.
To calculate the basic rate band which Mrs A has remaining, we take the £35,000 earnings from the £50,270 basic rate band limit, leaving £15,270.
Mrs A is then charged to CGT as follows on the taxable amount of £64,000:
Basic Rate CGT: £15,270 x 18% = £2,748.60
Higher Rate calculation: £64,000 - £15,270 = £48,730
Higher Rate CGT: £48,730 x 28% = £13,644.40
Total CGT: £2,748.60 + £13,644.40 = £16,393
Mrs A has a CGT liability of £16,393.
Please remember that this example is for illustrative purposes only and that in a real scenario there would likely be other factors to consider.
4. Reporting the sale to HMRC
Even if no tax is owed as a result of the sale of a UK residential property, residents of Dubai or the wider UAE must still report the sale to His Majesty's Revenue and Customs (HMRC) within 60 days of the sale (this 60 day time limit is from the date on which completion of the sale takes place).
Such reporting of the sale should be made using HMRC's online CGT Reporting system, though it is not uncommon for non-UK residents to be unable to register for this online filing system.
Should you be unable to register for the online CGT filing system, a paper CGT Return will be required.
We have helped many non-UK resident clients over the years in filing both online and paper CGT Returns. We are more than happy to be of assistance to you should you require such filing to be completed on the sale of a UK residential property.
Penalties: Failure to report the sale to HMRC with the 60 day time limit may result in financial penalties being charged, so prompt reporting is crucial. We guarantee to file all CGT Returns on time with HMRC for our clients once we have the information required and relevant authority to do so.
3. Methods of Computing the CGT Liability
For non-UK residents, calculating the Capital Gains Tax (CGT) due on the sale of a UK residential property can be a bit complex. Thankfully, for non-UK residents there are three methods to choose from. Understanding each can help you select the most beneficial one for your circumstances:
a. The "Normal" CGT Computation. This is the same CGT computation used by UK residents.
b. Time Apportioned Method (From April 2015). This method only brings into charge the capital gain from April 2015 to the date of sale on a time apportioned basis.
c. Rebasing the acquisition cost to Market Value of the property as at April 2015.
Choosing the Best Method: The most tax-efficient method will vary based on your individual circumstances. For each non-UK resident client we compute the CGT using all three methods and then select the one that results in the lowest taxable gain. Consulting with a specialist tax advisor can provide clarity on which method is most advantageous for your situation.
5. Advantages for Dubai/UAE Residents: Capital Gains Tax on UK Residential Property Sales
For UAE / Dubai residents, selling a UK residential property presents a unique set of advantages, especially when it comes to Capital Gains Tax. Let's look at these benefits:
a. No CGT in the UAE
The most significant advantage is the tax framework of the UAE itself:
Zero CGT: The UAE does not impose Capital Gains Tax on its residents, irrespective of where the asset (in this case, the UK residential property) is located.
Financial Freedom: This means that once the CGT obligations in the UK are settled, there are no additional capital gains tax liabilities for the sale in the UAE. This can result in significant savings and financial flexibility for the seller.
b. Double Taxation Agreement (DTA)
The UK and UAE's Double Taxation Agreement further amplifies the benefits:
Avoid Double Taxation: The DTA ensures that you're not taxed twice on the same income or gains. If you've paid tax in the UK, it can be offset against any potential tax in the UAE. But given that the UAE doesn’t impose CGT, this essentially means you’re only taxed once (if at all) – in the UK.
c. Investment Opportunities
The tax savings from the non-imposition of CGT in the UAE can be channelled into other profitable avenues:
Reinvestment: The money saved can be reinvested in the UAE's real estate market or other investment opportunities.
Diversification: Investors can diversify their portfolio by investing in various sectors within the UAE or even internationally.
d. Simplified Tax Affairs
Having only to deal with the tax implications in one jurisdiction (the UK) simplifies the process:
Less Bureaucracy: No need to navigate the tax rules of two countries or deal with multiple tax returns.
Clearer Financial Planning: With the tax implications being straightforward and limited to one country, it's easier to plan and manage finances effectively.
In Summary: For UAE/Dubai residents, selling a UK residential property comes with tangible tax benefits. The absence of CGT in the UAE coupled with the DTA with the UK provides a financially favorable environment. This, in turn, offers an attractive proposition for those looking to maximize their gains from the sale of UK properties.
6. Preparing for the Sale and CGT Reporting: Practical Tips
Valuation: Get your property valued as of April 2015. This helps in calculating the gain for CGT purposes.
Tax Advisor: Engage with a UK-based tax advisor familiar with non-resident CGT issues. Their insights can be invaluable.
Plan Ahead: If you’re contemplating selling, understand the tax implications well in advance so that you know what you need to do and when you need to do it. Having a UK-based tax advisor to calculate the potential UK CGT liability can help you to plan ahead.
Conclusion
Selling UK residential property as a UAE/Dubai resident comes with a specific set of tax implications. While the process can certainly be daunting, with the right information and guidance, you can navigate the CGT consequences of your sale efficiently.
Final Thought: Always stay updated with UK tax laws. They evolve, and what's true today might change tomorrow. Equip yourself with knowledge and professional guidance for clarity over your tax affairs.
Tax Troubles? Contact us Today
Our Services
We have extensive experience in reducing the Capital Gains Tax due on the sale of UK property and land for non-UK residents.
When you come to sell an asset that was inherited or received as a gift, there may be complex Capital Gains Tax issues to consider.
When assets are split or sold as the result of separation or divorce, there are specific Capital Gains Tax rules that must be considered.
If you give an asset to a family member or friend, there may be Capital Gains Tax consequences. See how we can help you in such a situation.
When selling an asset, there are a number of reliefs available which may reduce, exempt or delay the Capital Gains Tax due.
With HMRC changing the rules on reporting and paying Capital Gains Tax on residential property, we can help you to get things right.
"Tax doesn't have to be taxing" - but it often is. We can help to solve even the most complex issues.
Over the last few years, HMRC have changed the rules for reporting Capital Gains and the Capital Gains Tax due as a result of the disposal of residential properties.
Now you must file a Capital Gains Tax Return to HMRC within 60 days of the disposal of the asset, whereas before you would have been able to wait until it was time to file a Self Assessment Tax Return for the tax year in which the disposal was made.
Should you fail to report the disposal to HMRC and pay the Capital Gains Tax due as a result of the disposal within the new 60 day time limit, you may face a financial penalty.
HMRC's own website states that:
"If you sold your property after 6 April 2020 you must report and pay Capital Gains Tax within 60 days of selling property in the UK.
You may have to pay interest and a penalty if you do not report gains on property within the time limit."
Here at The Tax Faculty, our experts are here to help to ensure that you are in a position to report the correct Capital Gain to HMRC and pay the Capital Gains Tax due at the appropriate time.
We offer a full Capital Gains Tax service which includes our full consideration of the reliefs available to reduce the potential Capital Gains Tax to the minimum level possible, while remaining within the letter of the law governing such disposals.
This isn't limited to property transactions either, we also provide a full Capital Gains Tax service on the disposal of shares and other assets.
We have a proven history of reducing the final Capital Gains Tax due for our clients by considering all relevant facts and information provided to ensure that we are in a position to accurately advise on the most cost effective way of reporting the Capital Gain to HMRC.
Contact us today on freephone 0800 0016 878 or info@thetaxfaculty.co.uk to discuss how our experts can help you with any issues relating to Capital Gains Tax.
Please note, non-UK callers may need to call 0207 101 3845 if your line cannot connect to our 0800 number.
Our Promise - Computations in 24 Hours
The Tax Faculty 24 Hour Guarantee
We know that any tax issues are worrying for our clients, that's why we guarantee to provide you with an initial Capital Gains Computation within 24 hours of your providing us with the information that we require.
In addition, we use all our experience and expertise to ensure that you pay as little tax as possible, all while staying within the boundaries of tax law.
Our Managing Partner worked as a Senior Tax Professional within the Capital Gains Tax team in HMRC, giving us an unparalleled level of experience to help our clients reduce their tax bills when they sell property or shares.
HMRC require all disposals of residential property to be reported within 60 days of the sale, so don't delay - call our experts today on 0800 0016 878 or email us at info@thetaxfaculty.co.uk
Contact Us
Contact us today on freephone 0800 0016 878 for a free consultation on all Capital Gains Tax issues, or fill out the handy form below and we'll get back to you as soon as possible.
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(Please note, non-UK callers may need to call 0207 101 3845 if your line cannot connect to our 0800 number)
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