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TaxRobin
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Experience:  International tax
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Dear Sirs I am aware that changes in CGT for non-UK residents

Resolved Question:

Dear Sirs
I am aware that changes in CGT for non-UK residents come into effect next April.
I own a house with a current value of about 200K which has been rented since 1990. It was bought for £80K in 1988. I originally moved to buy a Hotel business in Scarborough and after that did not return to the house, as my husband’s job was in a different part of the country.
In 2011 we moved to France (to look after aging parents) and are now French tax residents for tax purposes. I understand that, at the moment, capital gains tax would be paid in France but that after April 15 next year any gain from that date would be paid in UK. Can you confirm that this is the case, and what we should do, if anything, to value or rebase the house value at that time.
What would my UK CGT liability be if I kept the house and sold after the present tentants move out say at the end of next year?
I hope you can help.
Linda Bodie
E-mail: *****@******.***
Submitted: 2 years ago.
Category: Tax
Expert:  TaxRobin replied 2 years ago.
Hello and thank you for allowing me to assist you.
If you sell the rental property you will be subject to CGT in the UK.
Under many agreements, you will pay Capital Gains Tax in the country where you are resident and you will be exempt from Capital Gains Tax in the country where the gain is made.
The exceptions are where either:
the gain comes from an asset that cannot be taken out of the country, for example land or a house
the gains come from assets connected with a business or trade you are running through a permanent establishment in that country
In these circumstances you will pay tax in both countries, but the country in which you are resident will give you relief for the tax paid on the gain in the other country. If resident of France then your relief will be granted by France.
If the capital gains tax due in the UK is in excess of that paid in France you will be liable for the difference. If the tax due in the UK is less than that paid in France, you will have nothing more to pay, but you will not get a refund of the tax you have already paid in France.
Capital gains tax will be charged on the increase in value of the property from 6 April 2015 onwards. You would need to get a valuation of the property to show how much it increased in value from then till actual sell date.
Some predict that many foreign owners of UK property will decide to sell before the April 2015 deadline, to avoid having to pay any CGT.
Customer: replied 2 years ago.

TaxRobin Thank you for your reply.

I am not sure I clearly understand the information that you have provided. I have gone through it portion by portion and am still confused. My thoughts on your reply are as follows:

You start by saying:

If you sell the rental property you will be subject to CGT in the UK.”

I presume this is a general statement of principal which has been in force for a number of years but then you go on to say:

“Under many agreements, you will pay Capital Gains Tax in the country where you are resident and you will be exempt from Capital Gains Tax in the country where the gain is made.”

This, I presume is more precise to my circumstances and means that I will pay the CGT in France as there is a double taxation agreement in force between UK and France. Again this has been in place for a number of years.

You then go on to say:

“The exceptions are where either:
the gain comes from an asset that cannot be taken out of the country, for example land or a house

the gains come from assets connected with a business or trade you are running through a permanent establishment in that country”

I assume this means that I am an exception since my gain is on my land/house. You go on to clarify:

"In these circumstances you will pay tax in both countries, but the country in which you are resident will give you relief for the tax paid on the gain in the other country. If resident of France then your relief will be granted by France.
If the capital gains tax due in the UK is in excess of that paid in France you will be liable for the difference. If the tax due in the UK is less than that paid in France, you will have nothing more to pay, but you will not get a refund of the tax you have already paid in France.”

As the UK CGT liability is higher than the CGT liability in France, you are saying that I will need to pay CGT in France and then deduct the amount paid from the higher amount of CGT owed in the UK. Is this correct? Again, this seems to be referring to gains made since the house was purchased in1988.

However, You then say:

“Capital gains tax will be charged on the increase in value of the property from 6 April 2015 onwards. You would need to get a valuation of the property to show how much it increased in value from then till actual sell date.”

This is confusing as up until this statement the impression I was getting was that I would be charged for CGT from 1988. This statement conflicts with that impression. Please clarify.

Also, my original question was about what sort of valuation is required? Would an estate agent valuation suffice? Or would I need to pay (some are quite expensive) for something more detailed?

Finally, you state:

“Some predict that many foreign owners of UK property will decide to sell before the April 2015 deadline, to avoid having to pay any CGT.”

This contradicts some of what you stated earlier in your reply. It suggests (as I believed) that no CGT is currently payable in UK on rental properties where double taxation agreements exist, until it is introduced in April 2015.

I had been led to believe that prior to April 2015 CGT is payable in France and that after this date it will be paid in UK. Is it possible for you to be more clear and specific on this point please. Note, it makes a big difference to me as France does not charge CGT on properties that have been held for 30 years or more and the charge diminishes on an annual basis from the 7th year of ownership to the 30 year point.

Finally, we are only in France to look after elderly parents. What would happen if we did not sell the house at this stage but moved back into it after my parents died, as we had always planned? We do not want to get old in France. How long would we need to live in the house before it became our principle private residence again and exempt from CGT.

We look forward to hearing your further thoughts. Thank you. Linda Bodie

Expert:  TaxRobin replied 2 years ago.
Hello,
This is s confusing section of UK law as it changes everything that was known in the past.
The property is in the Uk that will make if taxeable in the UK should you sell after the date. You would need a valuation but how that will all be played out as of yet is still not clear. Estate agent may be acceptable and then it would be the increase in value form that date till sold that would matter. The increase in value could be nothing depending on when you sell.
If you are resident in France and sold after the date, you would be charged in the UK on the gain and France (if they applied tax) would allow for a credit. The credit would equal the actual tax paid in UK or the tax applied in France (whichever is lower). That is how the treaty provision works.
If you come back to the Uk and use the property as your home you would be allowed to claim the Residence relief. You would start counting it immediately but any gain during the time it was rental would not be applied for exclusion. Letting relief may be used but only up to 40000.
TaxRobin, Tax Consultant
Category: Tax
Satisfied Customers: 14478
Experience: International tax
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