Under the current rules a UK resident domiciliary who owns an offshore company is charged to tax on any gains that the company makes. Essentially if he owns 50% of the shares in the offshore company he's allocated 50% of the gain.

The gain apportioned is the gain to the company which is then taxed on the individual.

This means that the gain is entitled to full indexation relief from the date of acquisition to the date of disposal. Under the new rules individuals won't be entitled to indexation relief, but companies will. Therefore if this was left unchanged the net effect would be that individuals would be entitled to indexation relief on the disposal of the asset and this would then be taxed at the 18% rate of CGT. Potentially very good for the taxpayer. We'll need to wait and see if this is amended in the draft legislation.

As overseas properties were rarely trading properties and could not qualify under the furnished holiday lettings rules they seldom qualified for business asset taper relief.

This means that the best tax rate a higher rate taxpayer could hope for would be an effective 24% after ten years of ownership. The reduction to 18% will therefore be a nice bonus for many owning overseas property. The main drawbacks could be anyone who os either paying CGT at the basic rate and/or who has owned the property for a long time (in which case the loss of indexation relief could also outweigh the benefit of the new tax rate) However, it's still necessary to take into account the effect of double tax relief.

Anyone who is also subject to overseas tax on the gain will be looking for a tax credit against the UK tax due. However if the overseas tax rate is above an effective 24% (in this case) the reduction to 18% would make no difference. You'd still have to pay the overseas tax due which would eliminate the UK liability whether it was at 18% or 24%. It would only be if the liability overseas was less than 24% that the new reduction could be advantageous.

Remember that this applies only to non UK domiciliaries who have been resident in the UK for more than seven years. As such anyone coming to the UK would have a seven year window in which they could still make full use of the remittance basis of tax without having to consider the £30,000 annual tax charge.

This will make establishing the date of commencement of UK residence very important. It may also be necessary to break UK residence for a year or two if significant overseas income is expected.

Remember that the tax benefit of non UK domicile status only applies to overseas income and assets. The whole purpose of the non domicile rules is to take account of the fact that non domiciliaries s by definition will not be in the UK permanently. (As we've seen non UK domiciliaries are usually people with non domiciled parents and who haven't made the UK their permanent or indefinite home).

Therefore on this basis the UK would still be very attractive for foreign nationals looking to come to the UK for up to seven years. After that any non doms with few UK ties and with a degree of mobility may simply leave the UK.

By becoming non UK resident they would be exempt from UK tax on overseas income or assets (as opposed to the remittance basis if they remained UK resident). Of course non resident non UK domiciliaries could not be subject to the £30,000 tax charge. Anyone with substantial overseas income or capital gains may just elect for the remittance basis, and suffer the £30,000 tax charge whilst retaining proceeds overseas. As many non UK domiciled individuals own overseas property or shares if significant gains will arise on disposal the £30,000 tax charge can still represent a low effective rate of tax.

Example

Pedro, a non UK domiciliary who has been UK resident for the last 10 years owns overseas property investments that are standing at a gain of £500,000. If he sold the property he's be looking at a UK capital gains tax charge of around £90,000 assuming no other tax reliefs or exemptions. If, however, he does not require the proceeds in the UK, he could simply elect for the remittance basis, pay the £30,000 tax charge and reinvest the proceeds overseas (perhaps into more overseas property). This would save him £60,000 in tax and equate to a UK effective tax rate of 6%.

The changes to the application of the remittance rules will make it not only extremely important to consider when if the remittance basis will be claimed, but it will also make non UK residence status even more important. By remaining non UK resident it is possible to avoid tax completely on overseas income.

Having said that, anyone with significant overseas income would be likely to just pay the £30,000 tax charge and claim the remittance basis. The overseas income/proceeds could then be retained overseas to benefit from the remittance basis.

See our members articles on this in the pre budget report section including:

Changes to the remittance rules after the PBR

Capital gains and non UK Domiciliaries after the PBR

This article looks in detail at how a UK company can cease to be UK resident and the tax implications (and exemptions from) the exit charge.

One of our latest articles (Tax deduction secrets for overseas property investors) looks at exactly what expenses you can claim to reduce your taxable rental income from overseas properties. As well as covering the standard type of expenses we've also looked at some of the biggies, such as travelling expenses (which as you'd imagine can be significant for an overseas property).

How are overseas dividends taxed?, and How is UK income taxed when you're non UK resident

The recent changes announced in the budget will impact on the tax treatment of overseas dividends as from April 2008. The first article looks at what the current rules are and what the effect of the changes will be.

The second article runs through the various types of UK income and explains how you'll be taxed on these after you've left the UK.

In addition, we've a new checklist which provides some guidance as to when you can use an overseas company:

Using an Overseas Company Checklist

There are numerous circumstances where you can lose the CGT exemption, and this article goes through what you need to know to ensure that you avoid these pitfalls and avoid CGT on your disposals.

This can give the children a 'foot' on the property ladder - but if you're considering this ensure you consider the tax implications in detail.

In particular you'll be most concerned with capital gains tax, inheritance tax and stamp duty.

We've just released an article covering the impact of property transfers by parents on all of these taxes and in particular looking at the offshore dimension (eg the impact of parents and children's non UK resident or non UK domicile status as well as transfers of overseas property).

Transfer of property to children tax efficiently

You may also be interested in our property tax toolkit which has just been released.

If this is an option for you, ensuring that the UK tax issues have been considered in crucial. There are a number of beneficial tax treatments available for someone going to work overseas so it's in your interests to make sure you've given your move some proper consideration. We've produced this checklist:

Going to work overseas

which highlights some of the key points you should bear in mind if you're going to work overseas.

We've looked at this in a new article:

Capital Gains Tax on Overseas property

This looks at when it can be most tax efficient to purchase overseas property in your own name, and when using an offshore company can be advantageous.

Offshore companies in particular are a complex vehicle to use and the clampdown on offshore avoidance makes it even more important to ensure that you use the company only when there are clear tax benefits to doing so.

Capital Gains Tax is usually one of the main considerations, and using an offshore company can be tempting if there is an exemption from tax on any gain. Of course your Residence and Domicile position will be crucial, and the above article takes account of this.

We've put together a handy checklist here:

Tax Checklist for leaving the UK

which covers some of the tax considerations that you should bear in mind. Some of these (eg the EIS clawback) will have a limited application but where they do apply can prove to be very costly!

CGT and Overseas property disposals

Overseas property letting as a trade

This looks at the opportunities available to you to class your overseas property as being used for the purposes of a trade, rather than an investment. There are lots more capital gains tax and inheritance tax benefits available for trading properties (including business asset taper relief and gift relief).

Tax deduction for interest on overseas property purchases

Ensuring there is tax relief for interest on overseas property purchases can be an important tax deduction. This article looks at when you can qualify for this.

As regular readers will know, establishing non UK domicile status can be very advantageous in tax terms when looking at reducing UK income tax, Capital gains tax and inheritance tax.

Using a statutory declaration to achieve non UK domicile is a look at how you can strengthen your claim to non dom status by using a statutory declaration.

Many of these investors will be purchasing these properties with some form of debt, and usually a long term mortgage. It was traditional advice to match debt with the asset, so long term debt for an asset likely to be held for a number of years generally makes sense. In tax terms it can also be advantegous as a UK tax deduction can be obtained for interest on the debt.

In addition, given the flexible financing packages available, obtaining a mortgage from an overseas lender is becoming more common.

When considering using an overseas mortgage, there are certainly tax advantages available (not least the tax deduction for the interest) but there are a number of pitfalls that should be considered. This article Using an Overseas mortgage to acquire property overseas goes through the tax disadvantages to watch out for.

The general rule is that you can visit for up to 90 days (calculated as an average over the period since departure - up to four tax years). This is what's laid out in the Revenue guidance and this has been relief upon by a number of taxpayers over the years.

However, this is guidance only and the Revenue can and do 'ignore' this in certain cases. You could for example be classed as UK resident even if here for less than the 90 days.

Members can review the position in this article: Return visits to the UK and non UK residence

For any property investor holding properties standing at a substantial gain, making full use of both their own and their spouses tax exemptions, allowances and reliefs is an important aspect of tax planning. We've put together a new article covering how property investors can benefit from these interspouse transfers where they own UK or overseas property.

This article on Transferring property to spouses looks at the tax benefits that can be gained from these interspouse transfers.