How to pay no CGT
Is there no way to escape the Capital Gains Tax burden as a successful property investor? Well, actually there is and let me tell you how.
Young Britons are boosting the ranks of the seriously wealthy. More than 136,000 people between the ages of 18 and 45 can lay their hands on £200,000 cash and other liquid assets. Altogether there are now almost one million of us that are classed as these ‘high net worth’ individuals. Many of these have derived all or part of their wealth from property. I know from personal experience that having made some money, the next challenge is holding on to it. The taxman is all too keen on gaining his share.
Capital Gains Tax is calculated by working out your capital gain after allowances and taper relief following the sale of your investment. The rate of taxation will depend on your taxable income in the year of disposable. This is because any gain is treated as additional income in terms of calculating the chargeable rate. Therefore, any gain could be subject to a maximum 40% tax charge; in other words a lot.
Pay no tax
There is a way for landlords to pay no tax at all and get a great suntan into the bargain. This involves becoming non resident . This tax term means effectively that you have to emigrate. You are however allowed to return to the UK for a period of less than 90 days per year. Unfortunately, you can’t just go on an extended holiday for a year and come back to the UK to live.
This strategy will only work if you sell your property whilst non-resident and are prepared to remain abroad for 5 years or more. If you are prepared to do this then those landlords that are looking to sell up could save literally hundreds of thousands of pounds in tax – enough to keep them in comfort during their extended world tour.
Which ‘Tax haven’?
Accountant Hassan Rashid of Barker Maule has been researching possible destinations for his clients. There are a number of tax havens that might be suitable.
The Caribbean has always been a popular destination, particularly with Americans. The Bahamas is one such tax haven, with no income, inheritance, corporation or Capital Gains tax. It’s also only 45 minutes flying time from Florida. In order to get a residence permit you must buy a property for at least $500,000.
Other potential destinations in the Caribbean are: The British Virgin Islands, Cayman Islands and Belize. If you don’t fancy beaches and palm trees an alternative is the shopper’s paradise of Dubai. This tiny Gulf State is literally rising from the desert in the form of the most incredible chrome and glass buildings. Property is cheap to buy and again personal tax is non existent.
However, my accountant believes that the best of them all maybe the tiny South American country of Panama. Panama offers a range of options to attract overseas investors. For example, if you deposit a sum with the National Bank of Panama in a timed deposit of no less than 5 years that pays not less than $750 per month to be granted non – immigrant residence status. This means that you will not be taxed for any income earned out side Panama as only local sourced income is taxed. You don’t even need to live there permanently to receive the residence status.
Whilst not all landlords are in the tax exile bracket yet, it is something that all aspiring property investors can focus on achieving during these dark winter months. A little bit of careful portfolio selection and another couple of years of steady growth could mean that you too are faced with the very pleasant dilemma of which tax haven to choose.
For further tax planning and investment advice:
Hassan Rashid 01636 704154