UK CGT on Your Kiwi Property
Also see our other blog articles (a) Case Study – The Kiwi Who Paid UK Tax on No Income, (b) Tax Advice for Kiwis Moving to the UK
We often receive inquiries from UK-based Kiwis who own property in New Zealand. It’s a question that comes up more frequently than you might think: “Do I have to pay Capital Gains Tax (CGT) in the UK on the sale of my New Zealand property?” For many Kiwis, this is an unexpected concern, mainly because New Zealand does not impose a capital gains tax on residential properties. Moving to the UK, however, brings with it a different set of tax obligations, one that could certainly lead to a CGT liability on your NZ property.
Understanding the application of Capital Gains Tax as a Kiwi resident in the UK can be challenging because there are a lot of differences between the tax codes of the two countries. Also, there are not a lot of accountants who are across both the NZ and UK tax systems. That’s why I have decided to put together this blog—to clarify these complexities and provide you with a clear roadmap of what to expect when it comes to CGT on your New Zealand property. Whether you’re contemplating selling your NZ home or just planning for the future, this article will equip you with the information you need to make informed decisions.
It’s also another reason why a lot of kiwi freelancers in the UK use our limited company accounting service. Not only do we have the UK tax expertise, but we can also tie that in with a detailed knowledge of how tax works in NZ – especially for Kiwis who are looking to move to the UK, and Kiwis who have been UK for several years and are now looking to return home.
Understanding Capital Gains Tax (CGT) in the UK
Capital Gains Tax (CGT) is a tax levied on the profit or gain you make when you sell or dispose of an asset that has increased in value. In the UK, this tax applies to a wide range of assets, including residential property. It’s important to note that you’re taxed on the gain you make, not the total amount you receive from the sale.
How it applies to overseas properties
For UK tax residents, CGT doesn’t just apply to properties within the UK – it extends to worldwide assets, including residential properties in New Zealand. This means that if you’re a Kiwi living in the UK and you sell a property back home, you may be liable for UK CGT on any profit made from that sale.
The tax is calculated based on the increase in value from the time you purchased the property to the date of sale. This can result in a significant tax liability, especially if property values in New Zealand have risen substantially. You can imagine for example buying a rental property in NZ in 2005 while you are living in NZ, then moving to the UK in 2023, selling the property in 2024 and paying UK CGT on the gain in value in the property since 2005! It is not an ideal scenario.
It is commonly thought that the capital gains tax calculation only commences when a Kiwi arrives in the UK, and that it is based off the value of the property when they arrive in the UK. And AI tools such as ChatGPT can often reinforce this position. However, this is not the case. The UK capital gains tax calculation when a UK based Kiwi sells their New Zealand residential property is based on the purchase price of the property, even if it was purchased years before they even arrived in the UK.
For residential property, the CGT rates in the UK are different than for other assets. For the current 2024/25 tax year, basic rate taxpayers pay 18% on gains from residential property, while higher and additional rate taxpayers pay 24%. These rates apply after deducting your tax-free CGT allowance (£3,000 for 2024/25).
Contrast with New Zealand’s lack of CGT
This UK tax obligation often comes as a shock to many Kiwis because New Zealand doesn’t have a comprehensive capital gains tax system. In New Zealand, profits from the sale of a personal home are generally not taxed, and even gains from investment properties are only taxed in specific circumstances (such as under the bright-line test).
The absence of a broad-based CGT in New Zealand means that many Kiwis are unfamiliar with the concept and may be caught off guard when they discover their UK tax liabilities. It’s super important for New Zealanders living in the UK to understand that their tax obligations extend beyond UK borders and include gains made on properties back home.
This disparity in tax systems underscores the importance of seeking professional advice when you’re a tax resident in one country but own property in another, and this is an area that we have been particularly active in, in recent years.
When Does UK CGT Apply to New Zealand Property?
Understanding when UK Capital Gains Tax (CGT) applies to your New Zealand property is often a blind spot for Kiwis living in the UK. Let’s break down the key factors that determine your tax liability:
UK Tax Residency Rules
The first and most important factor is your UK tax residency status. If you’re considered a UK tax resident, you’re potentially liable for CGT on worldwide assets, including property in New Zealand. UK tax residency is determined by the Statutory Residence Test, which considers:
- The number of days you spend in the UK, plus other related factors (see Automatic UK tests here)
- Your ties to the UK (e.g., work, family, accommodation) if step (a) above was inconclusive
It’s possible to be a tax resident in both the UK and New Zealand (often due to New Zealand’s out-dated tax residency legislation), which can complicate matters further. In such cases, the UK-New Zealand Double Taxation Agreement may come into play to determine where you’re considered resident for tax purposes. Our blog article “Tax advice for Kiwis moving to the UK” has more information on this.
Ownership Considerations
It’s important to keep accurate records of purchase prices, improvement costs, and market valuations to correctly calculate any gain.
Main Residence Exemption and Its Limitations
The Principal Private Residence (PPR) relief can provide a valuable exemption from CGT.
Full exemption: If your New Zealand property has been your only or main residence throughout your period of ownership, you may be fully exempt from CGT.
Partial exemption: If you’ve lived in the property for only part of your ownership period, you may get partial relief.
Common Scenarios and Examples
To better understand how UK Capital Gains Tax (CGT) applies to New Zealand properties, let’s explore some common scenarios that Kiwis living in the UK might encounter.
Selling a Family Home in New Zealand
Scenario: Sarah, a UK tax resident, decides to sell her family home in Wellington that she’s owned for 20 years. She became a UK tax resident 5 years ago.
CGT Implications:
- The gain on the property since Sarah originally purchased it is potentially subject to UK CGT.
- Sarah will be eligible for Private Residence Relief (PRR) for the period of time that she lived in the property.
- She will be exempt from CGT for the periods she lived in the property plus for the last 9 months of ownership.
- There is a period of 4.25 years that the property will be subject to a potential charge of capital gains tax (provided the property has gone up in value overall since the period of ownership)
Key Takeaway: Even family homes in New Zealand can be subject to UK CGT, but reliefs may be available.
Inheriting and Selling a Property
Scenario: James, a long-term UK resident, inherits a house in Auckland from his parents and decides to sell it immediately.
CGT Implications:
- The acquisition value for CGT purposes would typically be the market value of the property at the date of inheritance.
- If James sells the property soon after inheriting, there may be little or no gain to tax.
- However, if there is a gain between inheritance and sale, it would be subject to UK CGT.
Key Takeaway: Inherited properties in New Zealand are not exempt from CGT, but immediate sale often results in minimal tax liability.
Investment Properties and Rentals
Scenario: Emma, a UK tax resident for the past 2 years, owns a rental property in Christchurch that she bought 15 years ago. She decides to sell it, and bring the proceeds over to the UK to help her buy a UK property.
CGT Implications:
- The entire gain over the 15-year period could potentially be subject to UK CGT.
- Any capital improvements made to the property can be deducted from the gain.
- Letting Relief, which previously could have reduced the CGT, is now only available if Emma shared occupancy with her tenant.
- If Emma earns over circa £50,000 in the UK she will need to pay higher rate CGT (24% for residential property) on any gains above her annual CGT allowance.
Key Takeaway: Investment properties often incur the highest CGT liabilities, but careful calculation methods can help lower the tax impact a little.
Remember, while New Zealand doesn’t have a comprehensive CGT system, UK tax residents are liable for UK CGT on worldwide gains. This disparity often catches Kiwis by surprise, underscoring the importance of early tax planning when living abroad.
Calculating UK CGT on New Zealand Property
When talking about capital gains tax and how it impacts Kiwis selling their property in New Zealand, the crunch point is when you get to the actual tax calculation. For some Kiwis, it’s not as bad as they thought, and for others, the tax liability is a complete surprise. So let’s get into some tax calculations.
Determining the Taxable Gain
The taxable gain is essentially the profit you make on the sale of your property. Here’s how to calculate it:
Determine the ‘disposal proceeds’: This is typically the sale price of your property.
Deduct the ‘acquisition cost’: This could be
(a) the price you originally paid for the property,
(b) the market value at the date of inheritance (if inherited)
Deduct allowable costs: Such as
(a) Estate agent and legal fees,
(b) surveying fees for buying and selling
(c) costs of improvement works (routine maintenance and repair costs are not deductible, as they do not add value to the property but merely maintain it)
Example:
Sale price of NZ house: NZD1,500,000
Purchase price: NZD500,000
Improvement costs: NZD250,000 for a new extension
Selling costs: NZD8,000
Taxable gain: 1,500,000 – (500,000 + 250,000 + 8,000) = NZD742,000
HMRC accepts exchange rates from various sources, including the HMRC exchange rate database and reputable financial websites, but for simplicity let’s use a single FX rate of 2.15.
The GBP value of the gain is 742,000 / 2.15 = £345,116.
Taxing the Taxable Gain – Sarah
Working out the capital gain is one thing, but determining how it is taxed is another. The primary considerations are (a) if you lived in the New Zealand property
(b) your current UK earnings.
For all scenarios here we’re assuming the individual is a UK tax resident.
Firstly let’s use the above scenario for Sarah where the property relates to her home in Wellington which she is owned for 20 years and lived in at for 15 of those years. From the commentary provided above related to Sarah, there is a period of ownership of 4.25 years which is chargeable to UK capital gains tax.
Capital gain = 345,116 * (4.25 / 20) = £73,337.
If Sarah earns over £50,270 in the UK through her normal employment, then she is a higher rate tax payer and will pay the capital gains tax rate of 24%. Otherwise, the capital gains tax rate will be 18%. She also has the capital gains allowance of £3,000. If we assume that she is a higher rate tax payer then;
UK capital gains tax payable = (73,337 – 3,000) * 24% = £16,880.
Taxing the Taxable Gain – Emma
Now let’s look at the scenario for Emma who purchased a property as a buy-to-let in Christchurch and never lived in it. There are no capital gains tax reliefs for Emma.
Capital gain = 345,116
Let’s also assume that Emma has a higher rate tax payer in the UK and has the capital gains allowance of £3,000 available to use.
UK capital gains tax payable = (345,116 – 3,000) * 24% = £82,107.
If Emma had sold the property shortly before leaving New Zealand, there would have been no capital gains tax payable and she would have saved herself just over £82,000 in tax (about NZD176,500!). So you can see a little bit of tax planning can go a long way.
Currency Conversion Considerations
In the examples above I have treated the currency conversion quite simplistically. When dealing with New Zealand property, currency conversion adds another layer of complexity and to handle it correctly you would take the following into account.
Acquisition cost: Convert using the exchange rate at the date of purchase
Improvement costs: Use the exchange rate at the time each cost was incurred.
Disposal proceeds: Use the exchange rate on the date of sale.
Non-Domicile Considerations
In this blog article we have not touched on the tax benefits of using the non-dom tax regime that is available for Kiwis who live in the UK. There are significant changes coming in relation to the taxation of non-dom individuals, and although nothing has formally been announced, it’s fair to assume the entire regime will be scrapped shortly. Our blog article Upcoming Changes to the UK Non-Dom Tax Status covers this in more detail.
The non-dom tax rules would be of benefit in these scenarios above IF the individual does not remit any of the sale proceeds to the UK. This could often be the case where the individual has sold the house, and keeps the money in New Zealand because they intend to return to New Zealand in the next few years. There are some downsides to using the non-dom rules but if the taxable capital gain is high enough, it is possible to keep it off your UK tax return and avoid any UK tax. Our blog article Tax Advice for Kiwis Moving to the UK touches on the remittance basis (which relates to the non-dom tax rules) but like I say this regime is about to end, so do not do too much tax planning around using the remittance basis.
Leave the UK, Sell, and Return
This is also a common question that we get from clients. If they live in the UK and are selling a New Zealand residential property which will be subject to UK capital gains tax, can’t they just leave the UK, sell the property, and then return to the UK again and avoid any UK capital gains tax?
The answer is maybe.
It seems unfair that if you have owned property in New Zealand for the last 20 years, and only lived in UK for six months, that the property sale should be subject to UK capital gains tax. Temporary non-residence rules were introduced to stop people from being a non-tax resident for just a short period of time and reducing their exposure to (mainly) capital gains tax liabilities when they sell assets when being temporarily non-resident.
For Kiwis who have moved to the UK the temporary non residence rules aren’t too bad. An individual can be caught by the rules if
(a) They were UK tax resident for at least 4 of the 7 tax years prior to leaving the UK
(b) and period of non-residence is 5 years or less.
So let’s convert this into a couple of examples.
Bill has lived in New Zealand all his life and bought a NZ rental property 15 years ago. He recently moved to the UK and intends to sell the rental property, so that he can use the proceeds to purchase a UK property. Bill discovers the sale of the property will be chargeable to UK capital gains tax, and because he has not been UK tax resident for at least 4 of the last 7 tax years, he can return back in New Zealand, sell the property, and then move back to the UK, and avoid paying any UK capital gains tax. To be safe, he should make sure that he is living in New Zealand for one complete UK tax year. This means he should for example
(a) leave the UK before the 05 Apr 2025,
(b) arrive back in the UK after the 05 April 2026
(c) sell the property at some point between the 06 April 2025 and 05 April 2026.
In another example Jenni faces the same scenario, but she has been living in the UK for the last five years. If she plans on returning to New Zealand to sell the property and avoid UK capital gains tax, she must remain outside of the UK for five full UK tax years. So for her it’s a lot more cumbersome!
Summary
The article addresses the unexpected Capital Gains Tax (CGT) liability that Kiwis living in the UK may face when selling property in New Zealand. We get inquiries related to this on an almost daily basis, and it is particularly relevant for Kiwis because there is no capital gains tax in New Zealand (outside of the bright line test). With a bit of planning, and armed with the information we have given here, you can save yourself significant amounts in tax when selling your New Zealand property.
Frequently Asked Questions
Do I have to pay UK Capital Gains Tax on my New Zealand property if I’m a UK resident?
The sale of the property will fall within the scope of the capital gains tax regime in the UK if you are a UK tax resident. Whether you have to pay any capital gains tax or not will depend on the amount of the capital gain, and what reliefs are available to you.
How is UK Capital Gains Tax calculated on overseas properties?
UK capital gains tax on overseas property is calculated in the same way as UK properties. There is an added complication of using the correct exchange rate and all transactions that go into the capital gain calculation should be converted into GBP Using the current exchange rate at the time of the transaction.
Does the UK-New Zealand Double Taxation Agreement affect my CGT liability?
Not really. Article 14 of the Double Taxation Convention says that the gain may be taxed in NZ, but despite this, the UK reserves the right to tax the gain if the individual is tax resident of the UK. To prevent double taxation, Article 22 comes into play and says that any tax already paid in the NZ (which will probably be zero) can be used to offset any UK tax liability.
Can I claim Principal Private Residence relief on my New Zealand home?
Yes, while you are living in the property in New Zealand you can claim principal private residence relief for that period of time. This means that the property will not be subject to capital gains tax during this time.
What records should I keep for CGT purposes on my New Zealand property?
All records that you possibly can! This includes the purchase of the property, any receipts related to costs associated with the purchase of the property, and receipts for all improvement work done to the property (which helps reduce the capital gain).
How does UK tax residency status affect my CGT obligations?
Typically if you are a UK tax resident then you are subject to tax in the UK on your worldwide income and gains. If you have been tax resident for at least 4 of the last tax years there are specific rules related to the taxation of capital gains if you become temporarily non resident for five years or less.
What are the CGT implications for selling a rental property in New Zealand as a UK resident?
A rental property that you have never lived in is not likely to be eligible for any tax reliefs, so you will end up paying CGT on the full gain of the property, even for periods when you were not living in the UK.
Can I use the UK’s non-dom tax regime to avoid CGT on my New Zealand property?
Yes the non-dom tax regime may be helpful to avoid CGT on your New Zealand property. There are impacts to using this such as (a) losing your UK personal allowance (b) losing your UK capital gains allowance (c) the funds from the sale can never be related to the UK. These factors need to be weighed up before using the non-dom tax regime. Also keep in mind this regime is most likely to be scrapped soon.
Is it possible to avoid UK CGT by temporarily moving back to New Zealand to sell my property?
If you have lived in the UK for less than four years, and if you sell the property in the tax year where you are NOT in the UK, and you are not a UK tax resident for that full tax year, then yes.