Non-domiciled homeowners leaving the UK are increasingly asking whether to rent out, or sell, their UK residential properties, following the introduction of the non-dom tax changes on 6 April 2025. There is no 'one-size-fits-all' answer, and there are a number of key factors to consider from a UK tax perspective.
Sale
If an owner decides to sell, they will be subject to capital gains tax (CGT) on any gain (the top rate is 24%), unless Principal Private Residence Relief (PPRR) applies. PPRR applies where the property was the individual's only or main residence, and the extent of the relief tests this across the entire ownership period. If the property is rented out before a sale for more than nine months after the owner ceases to occupy it as their main residence, PPRR will be reduced. Even if the property is not rented out, the conditions for PPRR are also much stricter where an owner becomes non-UK resident.
Therefore, the extent of any CGT payable should be carefully considered ahead of letting or putting a property on the market.
Letting
If, instead, an owner decides to let their personally-held property, the rental income will be subject to income tax at their marginal rate (the top rate is 45%) regardless of whether that individual is UK tax resident or not, although they can deduct a proportion of the mortgage interest along with certain other letting expenses.
However, where a UK residential property is retained, the owner will remain exposed to inheritance tax (IHT) (at 40% on the net value, less the nil-rate band (currently £325,000) and any other allowances or reliefs). It is possible to mitigate this IHT exposure, either through a commercial mortgage or life insurance, but both come with costs attached.
Selling the property and taking the proceeds offshore could eliminate IHT exposure, but sellers should carefully consider their IHT 'tail' under the new Long-Term Resident (LTR) rules.
Recommendation
The right decision for many owners will not depend solely on the tax position, but on their family's circumstances, where they are moving to, their future intentions and their liquidity position. However, insofar as tax is concerned, there are a number of complex factors that should be carefully considered ahead of any relocation out of the UK.