Taxation on Capital Gains for Foreigners Living in or Outside of the United Kingdom
The United Kingdom is undertaking significant changes in its taxation policies, particularly affecting high-net-worth individuals (HWNIs).
One of the key changes is a rise in Capital Gains Tax (CGT), a levy imposed on the gain when disposing of chargeable assets, such as property, shares, assets held by a business, crypto assets, an inheritance, and personal belongings worth over £6,000. The new CGT rates for most assets are 18% at the lower rate and 24% for higher earners, equal to those charged on residential property sales.
The 5-year rule, an anti-avoidance measure, applies to UK taxpayers. It aims to prevent individuals from going overseas for one tax year, crystallising their gains, then returning to the UK without paying tax on them. Under this rule, if you decide to withdraw retained earnings from a company while living abroad and return to the UK within five years, you are fully taxed the year you return.
Non-residents must report the disposal of a property within 60 days of its completion to HM Revenue & Customs (HMRC). They can choose from three methods to calculate and pay capital gains tax: rebasing method, time apportionment method, or paying based on the entire profit. It's important to note that non-residents are also subject to capital gains tax on gains from selling property or land in the UK.
However, if you leave the UK and sell your assets as a non-resident, you will not be taxed on the gains. The pre-departure profits issue involves foreign-sourced income earned before departing the UK may still be taxable. Separating pre-departure profits from post-departure profits is essential.
The UK does not currently have an exit tax, but from April 2025, long-term UK residents who leave and cease to satisfy the residency tests could be exposed to up to 6% exit tax, although only on assets in UK trusts. The exception is if you have UK property, which is still treated as UK taxable income when you leave.
The changes have led to a notable exodus of millionaires from the UK. Many HWNIs remain in the UK despite these changes, planning to deal with the British government's plan to target their wealth. The British Treasury proposes increasing the tax burden on wealthy individuals primarily through measures such as raising rates on capital gains, inheritance, and income taxes for high earners, aiming to reduce inequality and raise public revenues.
It's crucial for individuals to understand these changes and plan their financial strategies accordingly. Consulting with a tax advisor or financial expert is highly recommended.
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