UK reduces tax on overseas property investment
07/02/2008 |
Only 18% CGT on overseas property investments
Investors who have purchased overseas property investment can now capitalise on a reduction in UK Capital Gains Tax (CGT) to 18% from April 2008.
The changes will take effect in the new financial year beginning 6th April 2008 and will include a £9,200 CGT allowance. Overseas property investments will only be subject to 18% tax on any gains above £9,200 replacing the previous sliding scale of up to 40%.
Currently, the minimum tax rate on residential property is 24% and until the new tax rates come into effect, property investors who have already purchased properties will benefit greatly from a minimum 6% tax cut further boosting profits on overseas property investment.
Property investors could also reduce tax bills further by splitting the capital gains with their partner where a property is jointly owned, and in effect pool their threshold allowance of £18,400.
Additionally, owners will be entitled to up to £40,000 letting relief against any gains earned. And as with the CGT allowance, providing the overseas property investment is held in joint names, the letting relief is available to each owner effectively doubling the maximum letting relief to £80,000.
Many countries, more notably within Eastern Europe, are keen to attract a continuous flow of foreign direct investment and as such, have also adjusted their tax conditions to as little as 10%. The favourable tax rates coupled with double taxation treaties with the UK make overseas property investment within this area highly profitable.
Other tax reductions can be made upon the sale of property if the investor has previously let the property and then lives in the property for any length of time, under the UK Principle Private Residence Relief (PPR). This allows the owner the last three years worth of gain, plus the period in which they have lived in the property, completely free from CGT.
Although PPR generally means CGT is not applicable when selling your main and only residence, if more than one property is owned, the PPR may be offset against any property in the UK or overseas.
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