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taxadvisor.uk
taxadvisor.uk, Chartered Certified Accountant
Category: Tax
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Experience:  FCCA - over 35 years experience as a qualified accountant (UK based Practitioner)
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I am selling a property in India that I had bought in 2004

Resolved Question:

Hi. I am selling a property in India that I had bought in 2004 for approx GBP 28000 (CONVERTED). I'm selling it for GBP 180000.
As per India Capital gains tax, I need not pay CGT on money reinvested in property in India. After reinvesting GBP 50000 and deducting my expenses in property renovation and accounting for inflation index, my Accountant in India says I will need to pay CGT of GBP 5000.
I became a citizen of UK in Jan 2014. Before that I have been a citizen of India from birth.
My question is: if I transfer my balance funds of GBP 125000 to UK, am I liability le to pay any tax to HMRC?
Submitted: 1 year ago.
Category: Tax
Expert:  taxadvisor.uk replied 1 year ago.
Hello and welcome to the site. Thank you for your question.

You say you became a citizen of the UK in 2014. When did you come to the UK to live? Are you a UK resident for tax purposes?
You say you bought the property in 2004? Did you ever live in that property as your main residence before coming to the UK?

Many thanks
Customer: replied 1 year ago.

I came to UK to live in 2006. I have been a resident of UK since then.

I lived in thta property from 2004 to 2006.

Expert:  taxadvisor.uk replied 1 year ago.
Thank you for your reply.

As UK resident for tax purposes, you are taxed on your worldwide income and gains. If you have suffered local tax on gain arising from sale of your property in India, you would claim foreign tax credit relief against tax on that gain in the UK.

You declare this gain by completing supplementary page SA106 - Foreign when filing your tax return.

More information on this can be found here

https://www.gov.uk/government/publications/self-assessment-foreign-sa106

Gains arising from sale of property are chargeable to capital gains tax. You get relief against that gain if the property has been your main residence during period of ownership.

Gain is sale proceeds less [cost of buying the property + improvement costs of a capital nature + buying and selling expenses]. In the UK, there is no adjustment for inflation when calculating the gain.

If you are UK resident but not domiciled in the UK there are special rules which might apply to your foreign income and gains. In these circumstances you have a choice of whether to use the arising basis of taxation or the ‘remittance basis’ of taxation. If you choose to use the remittance basis for a tax year you will pay UK tax on:

any of your income and gains which arise/accrue in the UK; and

any of your foreign income and gains that you, or another relevant person, brings (or ‘remits’) to the UK, even if that remittance occurs in a later tax year.

If you are a long-term UK resident and you choose to be taxed on the remittance basis, you may also be liable to pay the Remittance Basis Charge.

The impact of residence and domicile are covered on Page 9 of HMRC guidance note RDR1 here

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/427602/RDR1_gov_uk_hyperlinks_0_3_7078500.pdf

You say you lived in that property for 2 years before moving to the UK. This period would be covered by private residence relief. In addition, the final 18 months of ownership is also covered by relief as the property was your main residence at some point during ownership period. There is further relief available if the property was let and earned rental income. This income should have been declared to HMRC here.

CGT calculation - example
Period occupied as main residence – (2004-2005) = 24 months
Total period of ownership (2004-Jun 2015) say = 138 months
Total period covered by private residence relief (24+18) =42 months

Gain chargeable after private residence relief (138-42)/138 =69.5%
Lets say overall gain is £140k (not adjusting for inflation but based on historic costs)

Taxable gain (140,000x69.5%) =97,300

If the property was let then you may claim letting relief up to a maximum of £40k per owner provided the property was main residence of joint owners.
The rest is chargeable to CGT.

Now you claim gains allowance (£11,100 per owner) and pay CGT on the rest.

More information on private residence relief can be found here

http://www.hmrc.gov.uk/helpsheets/hs283.pdf

I hope this is helpful and answers your question.

If you have any other questions, please ask me before you rate my service – I’ll be happy to respond.

Customer: replied 1 year ago.

Thanks for the details.



  1. The gbp 50000 that is reinvested in India in property and thus exempt from CGT there - will that still be considered for CGT in UK?

  2. Considering gbp 30k spent on property renovation for enhancement of value, rental income not disclosed to HMRC, what is the CGT I will be due here if I follow the most tax efficient route?

  3. Can I declare my rental income to HMRC now in retrospect? The income was very low in terms of cash flow - probably £50/month, which could be offset against expenditure made on the property maintenance etc.

Expert:  taxadvisor.uk replied 1 year ago.
Thank you for your reply.

[q]
The gbp 50000 that is reinvested in India in property and thus exempt from CGT there - will that still be considered for CGT in UK

[a]
Any money reinvested in another property would not be exempt from CGT in the UK unless you were in business (here we are talking of proceeds from sale of a residential property).

[q]
Considering gbp 30k spent on property renovation for enhancement of value, rental income not disclosed to HMRC, what is the CGT I will be due here if I follow the most tax efficient route?

[a]
Renovations costs of a cpital nature as opposed to repairs and renewals would be added to the buying price in order to calculate gain for CGT purposes.
If the property was let then there is letting relief available
Gain covered by private residence relief = 37,210
Taxable gain (180,000-(28,000+30,000))x69.5%) = £84,790
Maximum letting relief £37,210
Gain chargeable to CGT (84,790-37,210) = £47,580
Gains allowance = £11,100
CGT on £36,480 at 18%, 28% or a combination of both depending on your total taxable income including the gain

[q]
Can I declare my rental income to HMRC now in retrospect? The income was very low in terms of cash flow - probably £50/month, which could be offset against expenditure made on the property maintenance etc.

[a]
You should declare the rental income albeit there may be no profit on property income. As you have not disclosed this in previous years, you may be penalised for non filing on tax return to cover property income - £100 per tax year from 2011 onwards.

I hope this is helpful
Customer: replied 1 year ago.
Thanks. Its becoming clearer now.
My taxable income is approx £90K/year.
1. Would that mean 28% CGT applies?
2. Maximum letting relief £37,210: What is the criteria for the extent to which this relief is applied?
Expert:  taxadvisor.uk replied 1 year ago.
Thank you for your reply..

As your taxable income is approx £90k/year, your capital gain would attract CGT at 28%.

The criteria for letting relief is covered in examples 8 and 9 of HS283.

Basically the amount of letting relief is the lowest of
- the amount of private residence relief already calculated (in my example £37,210)
- £40,000
- the amount of any chargeable gain you make because of letting (property that was main residence and let during period of ownership).

You would have to substitute the months covered in the example with actual figures in calculating your gain.

I hope this is helpful and answers your question.


taxadvisor.uk, Chartered Certified Accountant
Category: Tax
Satisfied Customers: 4879
Experience: FCCA - over 35 years experience as a qualified accountant (UK based Practitioner)
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Expert:  taxadvisor.uk replied 1 year ago.

Hello

I notice you have viewed my response to your follow up question about CGT on sale of a property abroad (JACUSTOMER-mcuixpia- Last Viewed on 10/06/2015 at 14:34).

I am just checking to see if you have any issues relating to your question that I may not have addressed.


Please let me know if I can be of further assistance.

Expert:  taxadvisor.uk replied 1 year ago.
I thank you for accepting my answer.

Best wishes.
Customer: replied 1 year ago.

Great. Thank you very much for your help with this query.

Rajesh

Expert:  taxadvisor.uk replied 1 year ago.
Rajesh, thank you for your good words.
Best wishes

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