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TonyTax
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Declaration of income from sale of property abroad. .

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Declaration of income from sale of property abroad.
Hello. I am UK Citizen, resident full time in the UK and a UK (higher rate) PAYE taxpayer. In 2007, thinking it might be a good investment, I used my own personal savings to purchase an apartment in Bulgaria at the cost of 75,000 Euros. Sadly, as we now know, the World economy collapsed in 2008 and property values in Bulgaria suffered considerably. The apartment has remained empty since purchase and has earned no income.
I am hopefully about to complete the sale of the apartment for 43,000 Euros ie a loss of 32,000 Euros. All required local government fees and taxes will be paid in Bulgaria as part of the sale process.
Am I required to declare the 43,000 Euros as ‘income’ on my UK tax return and hence pay tax on it? Many thanks.
Submitted: 2 years ago.
Category: Tax
Expert:  TonyTax replied 2 years ago.

Hi.

On the face of you have made a loss of 32,000 Euros. However, in order to calculate the actual gain or loss in Sterling, you have to use the UK Pound equivalent of your 75,000 Euros when you bought the property or the average rate for the year to the following 31 March (2008?) and the UK Pound equivalent of the 43,000 Euros when you sell the property or the average rate for the year to the following 31 March. You can use whichever method you prefer.

If you can remember the actual UK Pound cost in 2007, use that. HMRC seems to have archived rates before 2011 in a place beyond my search skills. The actual rate on 31 March 2008 was around 1.26 Euros to the Pound. However, the rate in 2007 was much higher as you will see on pages 13, 14 and 15 here. The average rates and spot rates for recent years can be found here.

You should report the gain or loss to HMRC. If you have made a loss, it needs to be reported within four years of the end of the tax year in which it is incurred so that you can use it in future against any capital gains that you may make in excess of the annual CGT exemption for the tax year in which you make them.

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

Customer: replied 2 years ago.

Thanks for the reply.

Good point about the relevant exchange rate. I shall work out the exact figure.

I presume I cant include other related costs such as legal fees, Agents fees, Bulgarian taxes etc?

Is there a particular 'space' on the HMRC tax return where I should declare a capital loss?

With regards ***** ***** timing of reporting the loss. I note you mentioned this should be done within 4 years of the event (which I assume occurs at the point of sale?), can the year of reporting be optional? ie are there any benefits in deferring (as I'm not anticipating any positive capital gains anytime soon).

Thanks

Expert:  TonyTax replied 2 years ago.

You can claim the costs of purchase such as legal fees, survey fees, local search fees etc and the costs of disposal such as legal fees, selling agent fees, etc. You might also claim any commission or bank fees for exchanging the money.

You need to disclose the gain or loss in the capital gains pages. The 2014 pages are here and the 2015 pages will be published by HMRC in a few weeks.

If I were you, I'd complete a tax return as soon as you can or you might forget to do so in time. The tax point is the date that you exchange contracts. You can register for self-assessment using a form SA1.

Customer: replied 2 years ago.

So is the capital loss is fixed in time from the date of exchange of contracts ie the tax point? (ie there is no potential benefit in reporting the loss in a later year?) and for how long a time period in the future can the loss be used to offset any capital gain (eg the following tax year only)? - and is this always timed from the point of the loss - not from when it is reported?

Expert:  TonyTax replied 2 years ago.
You claim the loss for the tax year in which it is incurred, probably 2014/15 in your case. You can carry it forward indefinitely until it is used.
TonyTax and other Tax Specialists are ready to help you
Customer: replied 2 years ago.

Ok. Got it thanks.

Thanks for your good advise.

Will close the query now and leave positive feedback.

Many thanks

Expert:  TonyTax replied 2 years ago.
Thanks and good luck with the sale.

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