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TonyTax
TonyTax, Tax Consultant
Category: Tax
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Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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I am recently retired and have been Non Resident purposes

Customer Question

I am recently retired and have been Non Resident for Tax purposes for the past ten years.
I bought a property 50/50 with my ex wife on 29 June 2009 for 275K, and that property is being sold to a developer for 905K, subject to Council Approval of the building works. We expect to get the money for the property about March 2016,
We have tenants in the property at this time and their rental agreement expires on the 30th October 2015, under the new rules for Non Residents, I believe we must spend 90 days in the property during the tax year 2015 - 2016 to avoid CGT for that year.
We get 2K per month rent for that property, and I get 13K in Pensions plus my share of the rent at1K per month,
My ex wife is also Non Resident for Tax Purposes and has a similar income.
Could you please calculate how much CGT we would we pay if we don't stay in the property for 90 days this tax year 2015-2016.
Submitted: 1 year ago.
Category: Tax
Expert:  TonyTax replied 1 year ago.

Hi.

Can you confirm that the UK property has been let since you bought it and that it has never been your main home. Was the value of the property on 5 April 2015 £905,000? Are you simply selling the property or taking a cut of the sell on profit from the development? Why will you not receive the sale monye until next year? When do you expect to exchange contracts?

Customer: replied 1 year ago.

The property had a loft conversion done just after we bought it in June 2009, ( it was not our main home then ) and that must have taken 6 months before we rented it out, The cost of the loft conversion was £40k.

We moved back into the property in June 2013 for six months when we wanted to sell it, but we found it had subsidence and could not sell, a local developer has offered us £905K to sell it, and together with the other seven owners of the site we have agreed to sell to the developer, subject to planning permission approval from the local council.

So to answer your question :-

It was our main home for only six months.

The value of the property is £905k and the Option to Buy is about to be signed by all eight owners of the site, the local council could take up to eight months to give approval, so if all goes well we would hope to get the money about March 2016.when we exchange contracts.

This would be a simple sale and nothing about a cut of the sell on profit.

The tenants are due to vacate the property on the 30th October 2015 and we would need to get our 90 days occupancy in the property, taking us up to the end of January 2016, as you can see the timing is tight.

And the original question is how much CGT will we pay if we don't occupy for the 90 days, and we sell for £905K.

Best Regards Bob.

Expert:  TonyTax replied 1 year ago.
Thanks.

Leave this with me while I draft my answer.
Expert:  TonyTax replied 1 year ago.

Hi again.

Provided the property was worth £905,000 on 5 April 2015, you should have no CGT to pay even if you don't achieve the 90 days of residency in it. You and your wife also have CGT exemptions of £11,100 each which would cover the first £22,200 of taxable gains.

The new rules for CGT for non-UK resident owners of UK residential property can be found here. If you look under the heading "Example of a rebasing calculation involving Private Residence Relief - gain and loss from 5 April 2015 to disposal", there is an example where the value of the property as at 5 April 2015 is used as the cost but as the property has been the main residence of the owner at some point, both last 18 months of ownership relief and letting relief have been given even though the owner did not meet the 90 day rule.

If you look under the heading "Work out your taxable gains", you will see the standard way of calculating the gain referring only to the post 5 April period of ownership. An alternative is to use the whole period of ownership and the original cost and to calculate the post 5 April 2015 proportion. Another alternative is to use the whole period of ownership with no time apportionment.

Clearly, you would choose the most advantageous method of calculation. You would clearly take take the 5 April 2015 value as your cost. If that is £905,000, then you will have no gain. If it is less than £905,000, then you would claim last 18 months of ownership and letting relief.

I cannot see there being a taxable gain even if you don't meet the 90 day rule unless the 5 April 2015 value of the property was significantly lower than the agreed sale price.

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

Customer: replied 1 year ago.

The £905k is made up of £625k to all the eight owners and because we had a loft conversion they agreed to an extra £280k as a side payment to us only, making a total of £905k.

If a developer had not got involved we were expecting to sell for £600k before the subsidence was found.

The developer has significantly upped the price from what we would have got on the open market.

The price of £905k was agreed with the developer before the 5th April 2015, and as long as we have e-mails to confirm this, would that be enough to cover your comment " unless the 5th April 2015 value of the property was significantly lower than the sale price ".

Best Regards, Bob

Expert:  TonyTax replied 1 year ago.
Are all eight owners non-UK resident? You will need to have some professional valuations done effective as at 5 April 2015. HMRC may well get the District Valuer involved given the high value of the property.
TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15764
Experience: Inc Tax, CGT, Corp Tax, IHT, VAT.
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Customer: replied 1 year ago.

The way i see it now, until the Option to Buy is signed between us and the developer ( which should be this coming week ) we do not have evidence that the value of the property is £905k.( or can we consider the e-mails since 2014 as evidence of their willingness to buy at £905

In 2013 it was valued at £600k, and if we exchange in March 2016 and get paid the £905k, How will HMRC see what we owe ?

Expert:  TonyTax replied 1 year ago.
You need to get a professional valuation of the property as at 5 April 2015 done by a reputable estate agent. In fact, it would be advisable to get two done. Many non-resident property owners have already done that so that when they sell in the future which could be in one year, two years, five years or more, they have the "cost" of their property ready for the capital gain calculation.

When you exchange contracts is irrelevant right now. You just need to have 5 April valuations 2015 done so that you have something to support your calculations when you make a report to HMRC (see below). Whilst the HMRC notes say it is not compulsory to have a 5 April 2015 valuation done now, if I were you, I'd get one or two done. The earlier, the better in my opinion.

The disposal will have to be reported to HMRC using the form here to HMRC within 30 days of the disposal and any CGT due paid within 30 days of the disposal. See the sections headed "Calculating the tax you owe" and "Reporting and paying Capital Gains Tax" here.
Customer: replied 1 year ago.

I will get the valuations done., but if they come in at say £705k then there would be a shortfall of £200k.

Would we be liable for a hefty CGT bill, and if so how much would it be ? and is it worth spending 90 days in the house to avoid it.

I am willing to pay more for your answer, and how can I be sure to contact yourself again in the future.

Best Regards

Expert:  TonyTax replied 1 year ago.
Provided you sell the property by 5 October 2016, there should be no CGT to pay.

The property was your main residence and it was let so if choose to use the calculation method whereby you only take account of the period from 5 April 2015 to the date of disposal into account using the 5 April 2015 value as the cost, so long as that disposal occurs by 5 October 2016, you will qualify for the last 18 months of ownership relief and that will cover the whole gain from 6 April 2015 to the date of sale. See the example under the heading "Example of a rebasing calculation involving Private Residence Relief - gain and loss from 5 April 2015 to disposal" here (about one-quarter down the page).

If you want to come back in the future, please ask for me by mentioning my name in the body of your question. It won't necessarily stop somebody else answering if I haven't picked it up after 15 minutes so you will have to make it clear if you only want me to answer it.
Customer: replied 1 year ago.

Tony Tax.

Thanks for your excellent advice, I appreciate you taking extra time to explain everything.

Best Regards Bob

Expert:  TonyTax replied 1 year ago.
Thanks.

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