Capital Gains Tax on Foreign Property: What UK Expats Need to Know

For UK expatriates, understanding capital gains tax (CGT) on foreign property is crucial when managing international investments. Whether you’re selling a second home abroad or an investment property, tax obligations may arise in both your country of residence and the UK. Here’s what you need to know.

What is Capital Gains Tax on Foreign Property?

Capital gains tax applies when you sell or dispose of a property that has increased in value. As a UK expat, the key factors affecting your CGT liability include:

• Your tax residency status
• The location of the property
• Any double taxation agreements (DTAs) between the UK and the country where the property is located

Even if you are no longer a UK tax resident, certain rules may still require you to pay CGT on UK assets. However, foreign property is treated differently.

Do UK Expats Pay CGT on Foreign Property?

If you are non-UK tax resident for more than five years, you typically won’t pay UK CGT on the sale of overseas property. However, if you return to the UK within five years of leaving, you may be taxed on any gains made during your time abroad. This is known as the temporary non-residence rule.

If you are a UK tax resident, you may be liable for CGT on worldwide assets, including foreign property, even if the sale occurs overseas.

CGT Rates for Expats Selling Foreign Property

CGT rates depend on your UK income tax band:

• Basic rate taxpayers (income up to £50,270): 18% on residential property gains
• Higher rate taxpayers (income above £50,270): 28% on residential property gains

You can also benefit from the CGT annual exemption, which allows you to make a certain amount of gains tax-free (£6,000 for the 2023/24 tax year).

Foreign CGT and Double Taxation Agreements

When selling a foreign property, UK expats may face capital gains tax (CGT) obligations both in the country where the property is located and in the UK. To prevent double taxation, the UK has Double Taxation Agreements (DTAs) with many countries, which can determine where tax is paid and whether relief can be claimed.

How Do DTAs Affect Capital Gains Tax?

A DTA typically follows one of these models:

Exclusive taxing rights to the country where the property is located

In this case, the UK does not charge CGT on the gain, even if the seller is a UK tax resident.

Example: France and Spain have DTAs with the UK that prevent the UK from taxing property sales in these countries. Expats selling property there only pay CGT in the respective country.

CGT liability in both countries, but tax relief is available

If a country taxes the sale, but the UK also applies CGT, you can claim relief for the tax paid abroad.

However, the UK only allows credit for foreign tax up to the UK rate—so if the foreign country has a lower CGT rate, you might owe the difference in the UK.

Example: Portugal taxes capital gains at 28% for non-residents, the same rate as higher-rate taxpayers in the UK. If you have already paid this in Portugal, the UK won’t charge additional CGT.

No DTA or no provisions covering capital gains

If a country does not have a DTA with the UK (or the agreement does not cover capital gains), you may have to pay tax in both countries without full relief.

Example: Some Caribbean nations do not have CGT but also lack DTAs with the UK, meaning a UK expat may still owe full CGT in the UK when selling a property there.

How to Claim CGT Relief Under a DTA

If your property sale is taxed in both the foreign country and the UK, follow these steps:

1. Pay the CGT in the country where the property is located. Ensure you obtain a certificate of tax paid or official documentation.
2. Report the gain on your UK Self Assessment tax return.
3. Claim Foreign Tax Credit Relief on your tax return. You’ll need to provide proof of tax paid abroad.
4. Adjust for any rate differences. If you paid less CGT abroad than the UK would charge, you may need to pay the difference.

Expats should check the specific UK tax treaty for the country where their property is located, as provisions can vary significantly. Consulting a tax adviser is often recommended to ensure compliance.

Principal Private Residence Relief (PPR) for Expats

Principal Private Residence (PPR) Relief allows homeowners to reduce or eliminate CGT on the sale of their main home. However, for expats, this relief is more complex, particularly if they have lived outside the UK for a significant period.

Who Qualifies for PPR Relief?

To claim full PPR relief, you must meet the following criteria:

• The property was your main residence at some point during ownership.
• You lived in the home as your primary place of residence—not just as an occasional holiday home or rental property.
• You did not rent out the property for extended periods (except under special exemptions).

How Expats Can Qualify for Partial PPR Relief

If you lived in the property for only part of the time you owned it, you may still qualify for partial relief, which reduces the taxable gain proportionally.

Final 9 Months Rule: The last 9 months of ownership are automatically CGT-free, even if you weren’t living there at the time of sale.

Work Abroad Exception: If you were required to live abroad for work and intended to return to the property, you may still claim relief for the time spent overseas.

Letting Relief: If you rented out the property at some point, letting relief (up to £40,000) may reduce the taxable gain, but only if it was once your main residence.

Example of PPR Relief Calculation for Expats

• You bought a UK property in 2010 for £200,000.
• You lived there for 5 years before moving abroad for work in 2015.
• You sold the property in 2024 for £400,000, making a gain of £200,000.
• You were abroad for 9 years but did not reoccupy the property before selling.

If you qualify for letting relief or can claim Foreign Tax Credit Relief, you may reduce the tax bill further.

What If You Move Back to the UK Before Selling?

If you return to live in the property before selling, you may regain full PPR relief depending on how long you live there before sale.

PPR relief can significantly reduce CGT liability, but expats must carefully document their periods of residence and understand the conditions that allow them to claim. If you’ve spent time abroad but plan to sell your UK property, seeking professional advice can help ensure you claim the maximum relief available.

Reporting and Payment Deadlines

For UK tax residents who sell foreign property and owe capital gains tax (CGT), there are strict reporting and payment deadlines to be aware of. Failing to comply can result in penalties and interest charges.

How to Report CGT on Foreign Property

The process for reporting and paying CGT depends on whether the gain is from a UK or overseas property. For foreign property, follow these steps:

1. Determine if CGT is owed.

Calculate your capital gain by deducting the original purchase price and any allowable costs (e.g., legal fees, stamp duty, renovation costs) from the sale price.

If the gain exceeds the CGT annual exemption (£6,000 for 2023/24), you will need to report it.

2. Check if you need to report immediately or via Self Assessment.

For non-UK property, you must report and pay CGT via your Self Assessment tax return by 31 January following the end of the tax year.

Unlike UK property, there is no requirement to report within 60 days unless you are selling a UK residential property.

3. Complete the Self Assessment tax return (SA108 form).

You will need to complete the Capital Gains Summary (SA108) section of the Self Assessment.

If tax was paid in the country where the property was located, you may be able to claim Foreign Tax Credit Relief to reduce your UK liability.

4. Submit and pay CGT by 31 January.

The payment deadline for CGT on overseas property aligns with the Self Assessment deadline.

If you fail to pay on time, interest will be charged from the due date, and penalties may apply.

Penalties for Late CGT Reporting and Payment

Failing to report and pay CGT on time can result in penalties:

Missing the Self Assessment deadline (31 January):

• £100 automatic fine (even if no tax is owed).
• Further penalties if more than 3 months late, plus daily fines after 6 months.

Late CGT payment:

• Interest accrues from the due date.
• A penalty of 5% of unpaid tax after 30 days, 6 months, and 12 months.

For expats, it is particularly important to plan ahead and ensure compliance with both UK and foreign tax reporting obligations.

Strategies to Reduce CGT on Foreign Property

To manage your capital gains tax (CGT) liability when selling a foreign property, consider these key strategies:

Timing the Sale – The Five-Year Rule

If you’ve been non-UK tax resident for at least five full tax years, you won’t owe UK CGT on foreign property sales. However, if you return to the UK within five years, any gains made while abroad may become taxable.

🔹 Example: If you left the UK in April 2020 and sell a foreign property in May 2025, remaining abroad until after April 2026 ensures no UK CGT applies.

Claiming Reliefs – Principal Private Residence (PPR) Relief

If the property was your main home, PPR relief can reduce or eliminate CGT for the time you lived there. Additionally, the final 9 months of ownership are automatically tax-free, even if you were no longer living there.

🔹 Example: You lived in the property for 4 years before moving abroad. If you sell after 10 years of ownership, 4 years + 9 months may be CGT-free, with tax only due on the remaining period.

Offsetting Foreign Tax Paid

If you paid CGT in the country where the property is located, you may claim Foreign Tax Credit Relief to offset the UK tax. However, if the foreign CGT rate is lower than the UK rate (28%), you might still owe additional tax in the UK.

🔹 Example: If Spain taxed your gain at 19%, you could offset this against the UK’s 28% rate, reducing your UK liability.

Using Spousal Transfers to Reduce Tax

Transferring ownership to a lower-earning spouse or civil partner before selling can lower the CGT rate from 28% (higher rate) to 18% (basic rate) or double the CGT annual exemption (£6,000 in 2024/25, £3,000 from April 2025).

🔹 Example: If your spouse has no taxable income, transferring the property before sale could cut the CGT rate by 10%, significantly reducing the tax bill.

Capital Gains Tax on Foreign Property For UK Expats

Navigating capital gains tax on foreign property as a UK expat requires careful planning. Understanding your residency status, tax obligations in both countries, and available reliefs can help reduce your liability. Given the complexity of international tax laws, seeking professional financial advice is highly recommended.

A tax specialist can guide you through the intricacies of CGT on foreign property, ensuring compliance and maximising any available reliefs. Meanwhile, Blacktower Financial Management is perfectly positioned to help you structure your international wealth, manage cross-border financial planning, and optimise tax-efficient investment strategies. With nearly four decades of experience advising UK expats worldwide, our expert team ensures that your financial future is secure, no matter where you call home.