Selling your house back home

Who can a British non-resident sell his/her UK residential property to? Are there any restrictions?

There are no restrictions. It can be sold to anybody.

Does the British non-resident need to have a bank account in the UK for the sales proceeds to be credited? Or can he manage his proceeds using his existing offshore account?

A British Non-Resident does not need a bank account for the transaction as the solicitor can forward the sale money via bank transfer to the desired account including offshore.

What are the taxes to be paid on the amount paid on the residential property?

Depending on the circumstances, the seller may be taxed on its profit as corporation tax or income tax. But with a straightforward investment sale, and an effective structure, a non-UK resident should be able to avoid all UK direct taxes on exit. Value Added Tax (VAT) may be chargeable, but this should be passed on to the buyer.

Income tax and, Corporation tax are based on the profit on sale and VAT is based on the sale price. The buyer pays stamp duty land tax at 4 per cent on the purchase price.

Individuals who are not resident in the United Kingdom are generally not liable to capital gains tax on the sale of a UK property. However, they could be subject to the tax if they have been resident in the United Kingdom within the past five years. In this regard, it is more important to determine whether one has been a non-resident for tax purposes. The budget announced on Wednesday levied a new capital gains tax charge for non-resident companies disposing of residential property to be introduced in 2013.

Does the manner in which a residential property was originally purchased (eg paid in cash from money remitted from the UAE, or for example, taking out a mortgage from a UK bank) have any bearing on the tax liability of the seller when the time comes?

Yes. The tax treatment of the exit will depend on the structure used for acquiring the vehicle and the manner of exit, but in the case of an investment property held through an offshore non-UK tax resident company, for example in the Channel Islands, owned by UAE tax resident shareholders, the UK tax should be limited to 20 per cent income tax on the net rental income, and no UK tax on the sale proceeds.

Are there any tax implications based on a selling a residential property, which was received as a gift, or was inherited?

This can affect the amount of SDLT (stamp duty land tax, which of course is paid by the buyer) on the original purchase, and also if UK tax is payable on the exit (eg the property is gifted to a UK company ) on a subsequent sale, the profit on sale will depend on what the acquisition cost is, which may be nil or market value depending on the circumstances.

Can the entire sale proceeds be repatriated?

There is no UK withholding tax on dividends or liquidation proceeds. Dividends paid outside the United Kingdom, or liquidation proceeds are generally not liable to UK tax unless the recipient is a UK tax resident. Depending on the manner of repatriation, there should be no problems.

For example, repatriation by means of repayment of interest on a loan may attract withholding tax. There are no fixed caps as to the amount of sale proceeds that can be repatriated.

What methods are available to lower the taxes by investing the money earned from the sale?

There are reinvestment reliefs, such as rollover relief for property occupied for the purposes of a trade but they are unlikely to apply or be needed on the sale of investment property by a non-UK resident.

How long does it take to complete all the transaction formalities from the point you put your property up for sale?

The time frame for selling a property can vary significantly. If the property is unique or in a desired location, it is likely that it will not take long to receive an acceptable offer. It also depends on whether there is a "chain" involved in the sale of the property: whether one of the buyers is dependent on someone else buying their property, etc.

Selling properties in the UK can take some time, particularly if there is a mortgage involved, and because solicitors tend to take their time. On average, a deal is completed in eight to 12 weeks from the moment a sale is agreed, an expert says.

A freehold title for a house or villa is easier to sell in terms of time as it can take a long process to go through a lengthy lease for an apartment/flat. Once the offer is accepted the property will be valued and surveyed. Sometimes the survey identifies work that is required on the property and the price may be slightly re-negotiated before the exchange of contracts.

What is the best way to sell a residential property?

Using an established agent is always recommended as they can arrange viewings and negotiate on your behalf to secure the right price. To look for agents, an expert suggests to start with the agent selling a similar properties to yours. Make sure the quality of the details reflect your standards, check for the quality of the properties that are listed, their description and photographs, among others. Use an agent that is a member of an established body such as the National Association of Agents NAEA or OCEA (Ombudsman for Corporate Estate Agents). Recommendations from family or friends in selecting an agent are obviously a bonus. Clarify the fees from the outset.

The normal fee for a sole agency is 2 per cent and this is payable by the seller if more than one agent is used (a multiple agency). In this case, the fee can be anything from 2.5 to three per cent, although non-agents will negotiate.

Does doing up your property help?

If the property is rented, get the tenant to keep the property tidy. First impressions are important and a de-cluttered property is more likely to attract a buyer. However, many agents these days, as one expert suggests, do not recommend sprucing a property up as buyers like to put their own mark on the property. However, if it has been rented for a number of years and is looking a little "tired" a coat of paint is likely to help the sale.

What kind of documentation needs to be put in place at various stages?

An Agency Agreement signed by seller. An EPC (Energy Performance certificate), which shows how energy efficient the property is, will be issued by the agent. The solicitor will go through all the necessary paperwork and prepare the contract.

If the property seller backs out or gets a higher offer after a deal has been agreed to, is there any penalty that the seller has to pay?

When a sale is agreed and confirmation letters are written, both buyer and seller can still back out without repercussions up to the point of exchanging contracts. This is usually up to four to six weeks from agreeing the sale. After exchange, the injured parties can sue the defaulting parties for damages and loss of time and compensation.

Sources: Sarah Lord, wealth planning director, Killik and Co.; Richard Woolich, tax partner, DLA Piper; Mario Volpi, head of residential services, Cluttons Middle East.

Disclaimer: It is always recommended that you hire a property lawyer to ensure that the legal process runs smoothly.

Who can an NRI sell a property to?

The NRI can sell it to another NRI; a person of Indian origin (PIO) or to any person resident in India. However, when it comes to agricultural land or a farm house, it has to be sold to a citizen and a resident of India.

Does an NRI need to have a bank account in India for the sales proceeds to be credited? Does one need to have a PAN (Permanent Account Number) card?

A Pan card is definitely required for the registration of the document. If one does not have it, they must apply for one under the NRI or PIO status applicable. At the time of sale, a NRE (non-resident external foreign exchange) or NRO (non-resident ordinary rupee) bank account is required for conducting any transaction. Whether or not the property being sold by the NRI was purchased when the person was a resident Indian or as a non-resident Indian, it has to be credited to an NRO account.

What are the taxes the NRI has to pay on the amount paid on the property?

The sale of a property triggers capital gains tax in India. The capital gains tax on property is assessed as income arising from India and is taxable as it would be in the case of a resident Indian.

The short-term capital gains would be taxed at normal rates, of up to 30 per cent, plus surcharge. The long-term capital gains would be taxed at 20 per cent post indexation for inflation as per the Cost Inflation Index circulated by the Income Tax Department. [Capital gains tax is classified as long term if the property is held for over three years and short term if sold within three years of purchase].

Can the sales proceeds be fully repatriated?

According to Reserve Bank of India guidelines, an NRI can repatriate the sale proceeds outside India, provided the purchase was in accordance with the provisions of the foreign exchange law in force at the time of purchase. The amount to be repatriated cannot exceed:

• The amount paid for the purchase in foreign exchange received through normal banking channels, or;
• the amount paid out of funds held in a Foreign Currency Non-Resident Account (FCNR), or;
• The foreign currency equivalent (as on the date of payment) of the amount paid from funds in a Non-Resident External (NRE) account;

If the residential property was purchased by NRIs with loans from authorised dealers or housing finance institutions, the repatriation cannot exceed the amount of the loans repaid out of the foreign inward remittances received through normal banking channels or by debit from their NRE or FCNR accounts.

If the property was acquired using funds in an NRO account, then the NRIs or PIOs have to credit the sale proceeds to the NRO account. And the amount allowed to be repatriated is limited to $1 million (Dh3.67 million) per financial year out of the balance in the NRO account.

However, if the NRI bought the property when resident in India, the sale proceeds have to be credited to the NRO account and the amount allowed to be repatriated is limited to $1 million per financial year from that NRO account after all tax dues have been paid.

The same rules of tax and repatriation apply in the case of residential property received as a gift or which is inherited.

In the case of residential property, the repatriation of sale proceeds is restricted to not more than two such properties.

Is there any way to get some relief on the capital gains taxes?

If one has long-term capital gains, one can avail tax exemption u/s 54 or 54F depending on whether the property sold was a residential property or land. The capital gains (where the sold property is a residential property) or the sale proceeds (in case of land) have to be re-invested in another residential property.

Alternatively, the funds can be invested in capital gains bonds from an NRO account on a non-repatriable basis.

In the latest Indian budget there is an additional avenue which has opened up: the reinvestment of funds in equity of any manufacturing small to medium enterprise (SME) for the purchase of new plant and machinery. By doing this, the exemption would still be available. Short-term capital gains cannot be re-invested into bonds or another house to save tax.

How long does it take to complete all the transaction formalities?

The dynamics of secondary property sales differ from location to location. Pricing and location are key aspects of all deals. If the location, product and pricing are right, the property can sell in a matter of days. However, if any one of the parameters is not aligned to market conditions, putting a timeline to the sale is very difficult. But, as one expert from Colliers International India says, it could take anywhere from three to six months on an average. Most properties that extend this deadline are either too expensive or have a serious quality issue.

What is the best way to sell property? Selling a property in India would almost always require anywhere from a single exclusive broker to a group of two to three brokers who become key contacts. This ensures adequate market coverage.

However the trend now is to hire one exclusive broker. This increases accountability and the seller must only deal with one point of contact.

However it is essential to do this with known reputed companies which have established track records.

Currently there is no law that regulates the brokerage fee which varies from city to city and within cities. Generally, the lower the value, the higher the brokerage fee.

The average trend is 1-2 per cent. However there have been rare cases when the same has gone up to 3-4 per cent or come down to 0.5 per cent.

Selling through relatives, or advertising yourself is a ad-hoc process that may not generate results or may delay the entire process. The first thing a seller should check is if any existing residents are interested in purchasing the property. This expedites the process considerably.

Does doing up your property help?

Sprucing up the property definitely helps as even the smallest oversights in terms of aesthetic appeal and maintenance can affect the price.

Simple whitewashing and cleaning is generally adequate to help secure a sale.

What kind of documentation needs to be put in place at various stages?

It's critical to have all title papers ready. This would largely entail:

1. Sale agreement (registered original copy).

2. All earlier sale agreements (history of sales).

3. A certificate of a housing society certifying that the person whose name is on it is the rightful owner of the property.

4. Copies of maintenance bills for the immediate three months prior to the sale.

5. A copy of the electricity bill

The process varies from transaction to transaction, but in general:

• On agreement of a price and all terms a 10-25 per cent deposit is paid to the seller and an MOU (memorandum of understanding) is entered into;
• The copies of the ownership documents are shared with the buyer as required;
• A public notice is published in local papers for due diligence;
• A final sale agreement is entered into with registration being done simultaneously with the exchange of original documents and the balance of the amount.

Sources: Om Ahuja, chief executive, residential services, Jones Lang LaSalle India; Poonam Mahtani, national director, residential services, Colliers International, India; Reserve Bank of India website; Anil Rego, chief executive, Right Horizons, Bengaluru.

Under what conditions do I become an NRI?

• If you have not been in India for 182 days or more during the relevant previous year;
• If you have not been in India for 60 days or more during the previous year and you have not been in India for 365 days or more during the four years prior to the previous year.

Source: Income Tax Act, Government of India.