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TonyTax
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I am a uk national, living in France for the past 3 years in

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I am a uk national, living in France for the past 3 years in our second home. This has been our main residence. We are in the process of selling this. there is no tax in France as it is our main residence. My wife is domiciled in Luxembourg
We are to return to the uk where we also have our previous
Residence. Do we have to pay tax in the uk for property sold in France. We have been uk non residents for 3 years. Does the 5 year non residency test apply to non uk disposals
Submitted: 2 years ago.
Category: Tax
Expert:  TonyTax replied 2 years ago.

Hi.

Assuming you acquired the French property whilst you were still resident in the UK and you fall foul of the temporary non-UK residence rules which I believe you will if you were UK resident in the UK in four of the seven tax years prior to your departure from the UK and you return within five complete tax years of your leaving the UK, then all or part of the gain you make may be taxable in the UK. HS278 here has more information on temporary non-UK residence. This assumes you left the UK before 6 April 2013 which you must have done as you say you have been living in France for three years.

The amount of any gain that will be taxable will be dependent on whether you made an election for one or other of the two properties to be your designated main residence within two years of acquiring the second one. If you didn't, the the matter of which was your main home will be based on the facts. You may be entitled to some main residence relief for the period that you lived in the French property based on the proportion of your period of ownership that period of residence represented. You might also be entitled to letting relief. There is more information on CGT and the main residence in HS283 here.

As your wife is non-UK domiciled, she may be able to use the remittance basis of assessment by leaving her share of any gain you make on the French property sale outside the UK. You can read about the remittance basis of assessment in section 9 of RDR1 here. However, she may incur liability for the remittance basis charge if she chooses to use the remittance basis of assessment.

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

Customer: replied 2 years ago.

Thanks, ***** ***** the following points:

Is a married couple allowed only one principal residence regardless of its location.? We did not make an election nominating our French Home as our Main residence. French Home was bought in 2004, so exempt portion would be 3+1.5 ie 4.5/10 as exempt. that is based on fact.

2 If I live another 2 years abroad making five years outside the UK, then my proportion of the Gain in France would be exempt.

3.If my wife uses the remittance basis of assessment in the year of disposal, would she be chargeable if she bring the gain to the UK the following year. Would the transfer be treated as capital and therefore no tax.

4.The other option would be to transfer the joint property to my wife before disposal and leave the gain out of UK.

Thanks

Expert:  TonyTax replied 2 years ago.

1 A married couple is only allowed one main residence, regardless of location. You are correct in your calculation of the CGT exempt part of the gain.

2 You would need to spend at least 5 full tax years as a non-UK resident to free the gain from UK CGT. The five year period would have started on the first 6 April following your departure from the UK.

3 The remittance basis of assessment is complicated as you will see from the paragraphs on it in section 9 of RDR1 on the remittance basis charge. If you were back in the UK within the five full tax year period but your wife left her share of the gain outside the UK, it could become taxable when it is remitted in a later year.

If she had to pay the remittance basis charge because she made a claim to be taxed on the remittance basis, she would nominate income or gains to allocate that charge against and when the gain was remitted to the UK, credit would be given against any UK CGT due for the remittance basis charge. If no RBC was paid, then there would be no credit and the CGT would have to be paid. Using the remittance basis of assessment for any tax year can lead to the loss of UK tax allowances as you will see in section 8 of RDR1.

4 You could do that but if she chooses to be taxed on the remittance basis she may make herself liable to the remittance basis charge of £30,000 or £50,000.

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Experience: Inc Tax, CGT, Corp Tax, IHT, VAT.
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