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TonyTax
TonyTax, Tax Consultant
Category: Tax
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Primary Residence Relief qualification returning ex-pat

Customer Question

Primary Residence Relief qualification for a returning ex-pat looking to occupy their residence on return but then very quickly sell and buy a larger property. Residence was lived in for over 10 years (acquired 1999), then rented for the last 3 years.
Submitted: 1 year ago.
Category: Tax
Expert:  TonyTax replied 1 year ago.
Hi.

In order to give a high detail answer, I will need the following information:

1 The month in 1999 the property was bought and what it cost to buy. Is it jointly owned?

2 Assuming you moved into the property as soon as you bought it, when did you move out (month and year)?

3 When did the letting commence (month and year)? Has the property been let more or less continuously since you first let it.

4 The value of the property now.

5 Would it be a possibility to sell the UK property whilst you were still living abroad?

6 What was the reason for your move abroad? Were you sent by an existing employer or did you choose to move abroad?
Customer: replied 1 year ago.

1 The month in 1999 the property was bought and what it cost to buy. Is it jointly owned? - correction, moved-in December 2000, sole buyer, purchase price £410,000

2 Assuming you moved into the property as soon as you bought it, when did you move out (month and year)? - moved out Nov 2012

3 When did the letting commence (month and year)? Has the property been let more or less continuously since you first let it. - First let Feb 2013, yes let continuously since then

4 The value of the property now. - £900,000

5 Would it be a possibility to sell the UK property whilst you were still living abroad? - Not desirable due to risk of triggering U.S tax obligation. UK employment contract begins 1st Oct.

6 What was the reason for your move abroad? Were you sent by an existing employer or did you choose to move abroad? - sent by an existing employer

Expert:  TonyTax replied 1 year ago.
Thanks.Are you the only owner of the property? Are you still employed by the employer who sent you to work abroad? Will you be working for that same employer or a new employer when you return to the UK?
Customer: replied 1 year ago.

Sole owner. Different employer now, but transferring back to London with this current employer.

Expert:  TonyTax replied 1 year ago.
Thanks.

Leave this with me while I draft my answer. It will take a while so please bear with me.
Expert:  TonyTax replied 1 year ago.
Hi again.

OPTION 1 - SELL AS NON-UK RESIDENT

Under new rules introduced with effect from 6 April 2015, non-UK residents who sell UK residential property may have to pay CGT in the UK which was not the case for disposals of such property prior to 6 April 2015. However, the value of the property on 5 April 2015 can be used as the "cost" of the property (instead of £410,000 in your case) which, together with the annual CGT exemption of £11,100, should pretty much cover your whole gain.

However, as you will not be selling until after your return to the UK for fear of incurring a CGT liability in the US, that option won't be open to you. I would have thought that there are reliefs in the US for periods when a property was the owner's main home. Take a look here for information on the new rules for non-UK residents and gains made on UK residential property.

OPTION 2 - ABSENCE RELIEF

Provided you have not owned another property which has been your main home since you moved abroad and you re-occupy the UK property before you sell it, you may be able to claim main residence relief for the period that you lived in the property and for the period that you worked abroad regardless of the fact that it was let. That would cover the whole gain and so there would be no CGT to pay. Take a look at CG65030 to CG65050 inclusive starting here for information on the qualifying criteria for absence relief.

OPTION 3

If you don't qualify for absence relief, you are will be able to claim relief from CGT as follows:

Total period of ownership to October 2015 179 months, occupied by you 145 months, let 32 months and vacant 2 months

Exempt gain £446,201 (£490,000 / 179 months x 163 months (145 + 18))

Letting period gain £38,324 (£490,000 / 179 months x 14 months (32 - 18))

Vacant period gain £5,475 (£490,000 / 179 months x 2 months)

Non exempt gain is £43,799 (£38,324 + £5,475)

Letting relief £38,324 (lesser of £40,000, £446,201 and £38,324)

Taxable gain £5,475 less annual CGT exemption £11,100 leaves no net taxable gain and, therefore, no Capital Gains Tax liability.

I have assumed that you reoccupy the property for one month before selling it. The gain for the period that you occupy a property as your main home is exempt from CGT as is the gain for the last 18 months of ownership regardless. Take a look at HS283 here for more information on main residence relief and letting relief.

I hope this helps but let me know if you have any further questions.
Expert:  TonyTax replied 1 year ago.
I have go out for a short while but will be back at my desk in about 30 minutes to answer any follow up questions you may have.
Expert:  TonyTax replied 1 year ago.
A slight amendment to my figures which makes no difference to the bot***** *****ne:

Exempt gain £443,464 (£490,000 / 179 months x 162 months (145 + 17))

Letting period gain £41,061 (£490,000 / 179 months x 15 months (32 - 17))

Vacant period gain £5,475 (£490,000 / 179 months x 2 months)

Non exempt gain is £46,536 (£41,061 + £5,475)

Letting relief £40,000 (lesser of £40,000, £446,201 and £41,061)

Taxable gain £6,536 less annual CGT exemption £11,100 leaves no net taxable gain and, therefore, no Capital Gains Tax liability.
Customer: replied 1 year ago.

Thanks for the detailed explanation. I'm keen to understand the 'worse case' scenario whereby I am unable to demonstrate re-occupany for a month (feasible due to work travel commitments). Here is my interpretation:

Exempt gain £396,927 (£490,000 / 179 months x 145 months)

Letting period gain £87,597 (£490,000 / 179 months x 32 months)

Vacant period gain £5,475 (£490,000 / 179 months x 2 months)

Non exempt gain is £93,072 (£87,597 + £5,475)

Letting relief £40,000 (lesser of £40,000, £446,201 and £87,597)

Taxable gain £53,072 less annual CGT exemption £11,100 leaves a net taxable gain of £41,972 which at 28% = £11,752

You say you assume 1 month re-occuapny for the more favourable case, but what is the minimum e.g. 1 night? My paper trail - e.g. new UK employment contract - will lead to this address as it is presently my only property anywhere in the world. It would be unfortunate to trigger a CGT liability due to circumstances beyond my control. But I have to sell this property in order to be able to move-up the property ladder and I have my eye on a off-plan property (Nov 2nd occupancy) that I need to move quickly on or lose.

Expert:  TonyTax replied 1 year ago.
The reoccupation rule only applies if you want to satisfy the criteria for absence relief (Option 2). For Option 3, you don't need to reoccupy the property before you sell it.

If you look at HS283 you will read that where a property has been your main home at some point of your ownership of it, then you will always qualify for exemption from CGT for that part of any gain covered by the last 18 months of ownership whether you were living there or not.

I changed the add back from 18 months to 17 months because I had you living in the property for a month before its disposal. If you lived there for the last 4 months of ownership, for example, then the add back would have been 14 months as the period of actual occupation (the main exempt period) would have been 4 months longer in any event.
TonyTax, Tax Consultant
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Satisfied Customers: 15886
Experience: Inc Tax, CGT, Corp Tax, IHT, VAT.
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Customer: replied 1 year ago.

Great news! So I will pursue option 3 when completing my tax return and then be on solid ground with no vague interpretations of the tax code and be CGT free on this transaction. Thank so much for the clear and specific advice. This has been an excellent experience and great value for my money. I will be recommending TonyTax and JustAnswer to my network.

Expert:  TonyTax replied 1 year ago.
Thanks for accepting my answer.

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