Taxation on Capital Gains for Foreigners and Non-Resident Individuals in the United Kingdom
In recent years, the United Kingdom has seen a series of changes in its taxation policies, particularly affecting high-net-worth individuals. Here's a breakdown of some key points that every investor should be aware of.
The UK government has implemented a 5-year rule, designed as an anti-avoidance measure. This rule states that if you withdraw retained earnings from a company while living abroad and return to the UK within five years, you will be fully taxed the year you return. However, there are certain caveats to this rule. For instance, if you pay yourself a salary from your business (but no dividends), that's not included in this legislation, allowing you to continue doing so as you wish.
Non-residents are also subject to capital gains tax (CGT) when selling property or land in the UK. It's essential to report the disposal of a property in the UK to HM Revenue & Customs within 60 days of its completion. Non-residents have the option to choose between the rebasing method, time apportionment method, or paying based on their entire profit when calculating non-residential CGT.
Capital gains tax is levied on the gain when disposing of chargeable assets, which include property, shares, assets held by a business, crypto assets, an inheritance, and personal belongings worth over £6,000. The gain is the difference between the sale price and the original purchase price, minus any allowable expenses. It's important to note that CGT is only due on gains above a tax-free allowance of £3,000, or £1,500 for trusts, each year.
One of the significant changes in the UK taxation landscape is the rise in CGT rates. The new rates for most assets are 18% at the lower rate and 24% for higher earners. These rates are now equal to those charged on residential property sales.
The increased CGT rates are among the changes already implemented as part of the UK's plan to introduce changes to the taxation of wealthy residents. These changes have led to a notable exodus of millionaires from the UK, with many moving to countries such as Switzerland, Austria, and the USA due to rising taxes and planned changes in the UK.
It's crucial to separate your pre-departure profits from your post-departure profits. If you leave the UK and then sell your assets, you could potentially avoid paying tax on the gains because you're not taxable on capital gains when you're non-resident. However, the exception is if you have UK property, which is still treated as UK taxable income when you leave.
Services like Nomad Capitalist help high-net-worth individuals plan their exit from the UK and create their dream personal and professional lives offshore. As the UK moves in the wrong direction for successful investors and entrepreneurs, with increasing taxes, government overreach, rising crime, and falling living standards, more and more individuals are seeking opportunities abroad.
In conclusion, understanding the changes in UK taxation is essential for anyone considering moving or investing in the UK. It's advisable to seek professional advice to navigate these complexities and make informed decisions about your financial future.
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