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TonyTax
TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15753
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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My wife and I are French citizen resident in the UK since

Customer Question

My wife and I are French citizen resident in the UK since 1998.
My wife got her UK citizenship this year.
We both are non domiciled but have not chosen to be taxed on the remittance basis.
My wife and I own 50/50 a property in France which we bought in 01/1994 and was our main residence before moving to UK in 01/1998. It has been rented since but will not be rented any more from August this year.
We plan to sell the property which is now tax exempt in France for CGT purpose.
Our Capital expense is GBP 245,261 and our expected sale price is GBP 490,000.
Several questions :
1- Will we be liable for CGT in UK? If yes for what amount (do we benefit from the exemption for years of main residence + 18month)?
2- can we claim this residence to be our main as we travel often to Paris and can use the flat as much as necessary?
3- if we claim this flat to be our main residence and sell it, what about the CGT exemption on our home in London which we own jointly in case of a sale?
4- Any advice on how to minimize or avoid the CGT on this sale?
Submitted: 6 months ago.
Category: Tax
Expert:  TonyTax replied 6 months ago.

Hi.

1 You may be liable to CGT in the UK. The rules for calculating a gain are different in the UK from those used in France. Ultimately, whether you will have CGT to pay or not depends on the facts and figures of your case, in particular, the total period of ownership, the total period of occupation by you, the total period of letting, what the property cost to buy, the cost of any improvements and what it is sold for.

2 If the French property has been let, it cannot be your main home at the same time. As you own a property in London, unless you made an election within two years of having more than one home for one or other to be your main residence for CGT purposes, the determination of which is your main home will be based on the facts.

3 See 2 above. If it was accepted that the French property was your main home, then the London property potentially becomes exposed to CGT. You cannot have your cake and eat it I'm afraid.

4 There isn't much you can do other than sell it in a tax year when your incomes are low as the CGT you pay is determined by the level of your incomes. As the property has been let, you will be entitled to letting relief which can reduce the gain not covered by your occupation of it and the last 18 months of ownership of it by as much as £40,000 per part owner. See example 9 in HS283 for informtion on how this works. You use the exchange rates at the time of purchase and sale or the average rates for the tax year whichever is in your favour.

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

Expert:  TonyTax replied 6 months ago.

Having done a calculation (months are more accurate than years), I have the fopllowing figures for each of you and your wife:

Gain: £122,370

Exempt gain: £29,913 (£122,370 / 22.5 years x 5.5 years)

Non-exemt gain: £92,457 (122,370 / 22.5 x 17 years)

Letting relief: £29,913 (lesser of £40,000, £29,913 and £92,457)

Taxable gain: £62,454

Annual CGT exemption: £11,100

Net taxable gain: £51,444

CGT is charged at 18% or 28% or a combination of the two rates depending on the level of your income in the tax year of disposal.

Expert:  TonyTax replied 6 months ago.

I have to go out for a while but will be back a little later to answer any follow up questions you may have.

TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15753
Experience: Inc Tax, CGT, Corp Tax, IHT, VAT.
TonyTax and 2 other Tax Specialists are ready to help you
Customer: replied 5 months ago.
Hi Tony thanks for the reply on the CGT but I need further advice on the same subject. Here is the question, please tell me how you want to proceed for billing.
As mentioned my wife and I moved to UK in Jan 98 and started renting the flat in Paris. The flat was mortgaged in France and between 01/98 and the 2007 we have repaid the monthly mortgage with un-remitted income (rent from the flat and other income which have not been taxed in UK pursuant our non-domicilied status). Over this period we have paid £243,374 in monthly repayments = £195,240.94 of principal and £48,133.73 of interest. We plan to sell the flat and will need to use the sale proceed in UK. As mentioned in my first question we would be subject to CGT on the sale but will we be subject to income tax on the sale proceed for the amount of principal repaid with unremitted income? If this is the case can we leave £195,240.94 in France (unremitted) but bring into UK the balance which is partly initial capital we had at purchase and capital gain (on which we are paying CGT)?
Expert:  TonyTax replied 5 months ago.

I'll get back to you on that.

Expert:  TonyTax replied 5 months ago.

You will be remitting capital, not income, from the sale of the French property to the UK. There are some notes on using non-UK income to service UK based loans only being treated as taxable remittances of income here and here. I cannot see how that can apply in your circumstances. The new rules came into being on 6 April 2014, long after you appear to have stopped funding the French mortgage from non-UK income.

If you wish to pay a fee, I would suggest you just pay a bonus as you posted the question here.

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