I bought an overseas property 5 years ago at £100,000. I became a UK resident on 1/1/2020. I sold the overseas property on 31/3/2020 for £300,000. The valuation of the said property on 31/12/2019 (a day before I became a UK resident) was £250,000. Would my capital gain be £200,000 (sale proceeds £300,000 less cost £100,000) or £50,000 (sale proceeds £300,000 less £250,000 being the portion the valuation increased since I became a UK resident). My logic is the increase in value when I was a non-UK resident should not be subject to UK tax. Am I correct to make such argument?
Disclaimer: I am not a tax-advisor; this is not tax-advice.
Unfortunately, I have not found any evidence to support your hope that you are only liable for Capital Gains Tax (CGT) on the gain since becoming UK-resident. However, taking double-taxation rules into account it may not make much difference.
There is much about whether you are liable to pay CGT (more on this below1), but assuming you are liable, everything I've seen (e.g. Tax when you sell property - Work out your gain from Gov.UK) just talks about the difference between the buying and selling price:
Your gain is usually the difference between what you paid for your property and the amount you got when you sold (or ‘disposed of’) it.
While there are exceptions around gifts or inheritance etc., I've not seen anything to indicate the "cost basis" should be taken from when you became UK resident.
This "fits in with" how potential double-taxation works. The principal here is that if two countries (the one where you are resident, and the one where the property is) both tax capital gains, then you are liable for tax in both countries. In many cases (where a suitable treaty exists) you can then claim relief for having been taxed twice. See, for example, Selling property abroad – the tax implications from the website of accountants Haines Watts (my emphasis):
Whether you need to pay tax on the proceeds of the sale in the other country will depend on the local tax laws. Most countries will tax a gain on real estate located in that country, but local capital transaction taxes may also need to be considered.
If a gain is subject to tax both in the UK and the country where the property is located, then it is usually possible to claim double tax relief so that you are not effectively taxed twice. How this relief works will again depend on which country the property is situated in – the UK has double tax treaties with a large number of countries which are designed to reduce or eliminate any element of double taxation.
So, assuming both countries levy CGT or equivalent, and there is a double-taxation treaty between the two:
If you were liable for tax on the full gain (£200,000) in both countries, you will be able to recover the "double-tax" from one of them.
If you were only liable in the UK for tax on the gain since you became resident (£50,000) and in the other country for tax on the gain from before that date (£150,000), you would pay once to each country.
If the UK liability was only since gaining residency (£50,000) but the other country charged for the full gain (£200,000) you would be double-taxed on the common gain (£50,000) and would be able reclaim one of those amounts.
In all cases, after reclaiming any double-taxation, you effectively end up paying CGT (or equivalent) on the whole £200,000 gain to one country or another. Of course, depending on the countries' CGT rates, and which country's tax you are able to reclaim when double-taxed, the overall tax bill may vary between the the three scenarios.
1 The fact that you are now UK-resident means you are very likely to be liable for CGT. However, depending on where you are domiciled (or deemed to be domiciled by HMRC) it may be possible to defer tax if the money has not already been brought into the country. From the tone of the question, I suspect this may not apply to you, however...
According to Gov.UK's Tax on foreign income page, if HMRC recognise you as non-domiciled in the UK (see below):
Tax if you’re non-domiciled
You do not pay UK tax on your foreign income or gains if both the following apply:
- they’re less than £2,000 in the tax year
- you do not bring them into the UK, for example by transferring them to a UK bank account
Since your gains are over £2,000, then:
You must report foreign income or gains of £2,000 or more, or any money that you bring to the UK, in a Self Assessment tax return.
You can either:
- pay UK tax on them - you may be able to claim it back
- claim the ‘remittance basis’
Claiming remittance basis means you only pay UK tax on the income or gains you bring to the UK, but has potential drawbacks: you usually lose any tax-free allowances (for any UK income/gains) and – for a long-term "non-dom" – you would have to pay an annual charge (£30,000 per year if resident for 7+ years).
Non-domicile status is complicated: if there is any chance it applies, you should probably seek the advice of a professional tax adviser. Where am I domiciled? from the Low Incomes Tax Reform Group website2 gives an overview, and the above HMRC page refers to both Chapters 5 and 9 of their guidance document Residence, domicile and the remittance basis: RDR1.
2 Despite the "low incomes" in their name, and helping those on low incomes being their main goal, I've found this site to be helpful and clear on a number of occasions. (Disclaimer: I have no affiliation with the site, other than having once entered into a brief email exchange over another of their pages).