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TonyTax
TonyTax, Tax Consultant
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Hi I have agreed to buy my neighbours property as he has

Customer Question

Hi

I have agreed to buy my neighbours property as he has moved to Ireland. He moved to Ireland 12- 13 years ago and has rented the property out but would like to move back in for 6 months before he sells it to me to avoid Capital Gains tax. I was under the impression that if its his only property he wouldnt pay Capital Gain Tax but he informed me once you rent the property out you will have to pay CGT on the difference in value, between when he rented the property out to its current market value. My question is does he need to move back in for 6 months to reduce the amount of CGT he repays?
Submitted: 2 years ago.
Category: Tax
Expert:  TonyTax replied 2 years ago.

Hi.

Moving back into the property for six months would not necessarily help your old neighbour escape UK CGT altogether (but see next paragraph). The whole period of ownership would need to be split between CGT exempt and CGT liable periods. Every case depends on the facts and figures. Take a look at the HMRC helpsheet HS283 for information on how CGT works on residential property.

If your neighbour has been non-UK resident for tax purposes for 12 to 13 years, ie living in the Republic of Ireland as opposed to Northern Ireland, he has until 5 April 2015 to sell the property and pay no CGT in the UK. Non-resident individuals do not pay CGT on gains made while they are non-resident unless they return to the UK within five full tax years (6 April to 5 April) of leaving the UK. From 6 April 2013, the period is five years, not five full tax years. As your neighbour would presumably have completed his five full tax years as a non-UK resident 7 or 8 years ago and he has maintained that status, he should not have to pay UK CGT so long as he sells the property before any permanent return to the UK. Take a look here and here for more information.

From 6 April 2015, non-UK resident individuals will be liable to UK CGT on gains made on UK residential property. However, whilst the detailed legislation has yet to be decided on, it is likely that only the increase in value from 6 April 2015 to the date of disposal will be subject to CGT in the UK and that any gain accrued to that date will be exempt. Take a look here for more information. This will mean a revaluation of UK residential property by non-resident owners will be necessary.

I hope this helps but let me know if you have any further questions.

Expert:  TonyTax replied 2 years ago.
Hi again.

I can see that you have read my answer to your question. If you need further clarification, please ask. If not, would you kindly rate my answer so that I get paid for my work.

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