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Sam
Sam, Accountant
Category: Tax
Satisfied Customers: 13704
Experience:  26 HMRC expertise, PAYE, Self Assessment ,Residency, Rental Income, Capital Gains, CIS ask for Sam Tax
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Capital Gains Tax ?? I would like to ask a question about

Customer Question

Capital Gains Tax ??
I would like to ask a question about how to minimize CGT.
We own 2 properties in the UK and currently reside in Kenya:
***** TW11 8NL
Date Purchased October 2005
Purchase Price 440,000
Occupied - dates October 2005 - April 2011
Let - dates June 2011 - present
Current rental income 2200 per month
Cost of improvements Approx. 10,000
Current Value Est 850,000
Monthly mortgage repayment 2000 (repayment)
Outstanding Mortgage 78,500
***** TW11
Date Purchased March 2011
Purchase Price 275,000
Occupied - dates April 2011 – July 2011
Let - dates July 2011 - present
Current rental income 1400 per month (-120 exp)
Cost of improvements Approx 20,000
Current Value 420,000
Monthly mortgage repayment 580 (interest only)
Outstanding Mortgage 178,000
• Tax has been paid on rental income
Living Abroad
Living in Qatar September 2010 – June 2012 (Peter) July 2011 – June 2012 (Carol)
Living in Kenya June 2012 - present June 2012 - present (both)
• Earnings in Qatar were tax free
• Peter has been employed full time in Kenya and has paid tax on earnings
• Carol was employed for 12 months in Kenya and paid tax on earnings
Questions:
Our plan is to return to living in the UK no later than December 2018
We will want to sell*****and possibly*****to purchase a retirement home
1. What action should we take to minimize CGT?
2. At what point should we consider stopping letting?
3. If we stop letting – but still live in Kenya, can we claim one of the properties is our main residence?
4. Should we live in either property for a period of time before we sell?
5. Should we consider asking a family member to live at*****for us until we return?
Thank you for your advice
Submitted: 5 months ago.
Category: Tax
Expert:  Sam replied 5 months ago.

Hi

Thanks for your questions - I am Sam and I am one of the UK tax experts here on Just Answer

Can I ask why you only spent 3 months living at Hall Court - why did you not stay at Arlington Road as they both are in the same geographical area. Did you move all your possessions to***** and change doctors,dentists,banks to this new address and have all utilities such as telephone and say cable/sky TV linked up - please expand on this 3 months

Did a UK Employer send Peter to work in Qatar or was this a direct employment contract that Peter sought out directly with the foreign employer. I assume HMRC have agreed that Peter is to be treated as not resident and not liable to UK tax on worldwide income.

What visits back to the UK have taken place back to the UK since Sept 2010 for Peter and for Carol dince JUne 2012 (can I have dates arising and leaving the UK) Where did you stay on these visits

Did Peter return to the UK between Qatar and Kenya or was the move from one location to another with no UK break in between

Is it possible that you could/would return to either of these properties to live and then sell (although it may be that*****cannot be treated as an original main residence - which I need to establish)

I can then answer your questions fully

Thanks

Sam

Customer: replied 5 months ago.
We purchased*****for 2 reasons:1.*****was let empty and so we moved furniture and other items to***** Our intention was to keep this as a ‘bolt hole’ for times we spent in the UK. Originally, I planned to be in Qatar for 6 months and then return to my job in the UK and live in the flat.
2. Our intention was to let 10 HC on short-term lets so that the property would be available for times we spent in the UK. This hasn’t happened and it has been let to tenants since I moved to Qatar in July 2011.
3. We changed doctors, dentists, driving licenses, utilities etc to***** Some of these are now registered at my mother’s UK address.Peter’s employment in Qatar was for a Qatar company, He was not sent by his UK employerPeter is treated as non-resident and his income is not subject to UK tax. (He does however have a pension in the UK and we pay tax on that and income from properties).Visits to UK since 2010 – PeterI will need to check exact dates. Peter has spent probably less than 15 days per year in the UKWe stayed with family members’Visits to UK since 2011 – CarolI will need to check exact dates.
During the year I was employed in Kenya, I made few visits (Jan 2014 – Dec 2014), maybe 15 days.
Since then I have made frequent visits, For example, last year I made 5 visits and this year I have already been in the UK for 8 weeks.I stay with family membersBetween employment in Qatar and Kenya, Peter made a short holiday visit to the UK.We would consider returning to either of these properties before we sell if that would be advantageous.
Expert:  Sam replied 5 months ago.

Hi

Thanks for your responses -

So its fair to say that Peter has never lived at*****.... but the mortgage and deeds are in joint names? As this clearly would better your capital gain position - if you were to return to this property - but I fear that as the scene has been set (so to speak) that this is not an option you can take.

Are all your personal possessions still at*****and is there anyway the property (if in joint names) could be transferred into your sole name before 05/04/2017?

Thanks

Sam

Expert:  Sam replied 5 months ago.

Oh and could you advsie why this second purcahse was made - why did you not set off abroad from Arlington ?

Customer: replied 5 months ago.
Sam
Yes you are correct -Peter has never lived at*****.... but the mortgage and deeds are in joint names?It would be possible to transfer the property to my sole name.WE bought the flat as a bolt hole and somewhere to store furniture so that we could let*****not furnished
Expert:  Sam replied 5 months ago.

Hi

Ok well having taken all the facts into account - I have done some calculations and this is the best case we can hope for

Assuming you own no property abroad -

Return to 57 Arlington - and stay there - its fine if you then subsequently sell (unless of course your return to the Uk was to be in a geographical area too far from this property - let me know if that,s the case)

Then the capital gain position for each of you would be as follows at TODAYS Date

Gain £410,000 (£850,000 less £440,000) less Capital Improvements £10,000 = £400,000

(Please note the costs to buy and sell such as legal fees and estate agents etc are an allowable deduction

But for each of you

Property bought Oct 2005 and to Aug 2016 property owned for 130 months

Peters main residence from Oct 2005 to Sept 2010 60 months plus last 18 months of ownership plus 48 for being abroad = 126 months

PETER £200,000 (half share) x 126/130 = £193846 exemption under the private residence relief (PPR) rules = £6154 gain

Then Private Lettings relief the lesser of 1) PPR which amounts to £193,846 OR 2) Gain left over after PPR has been applied - so £6154 OR 3) £40,000 as the lesser is the second calcualtion - the amount of gain left over after PPR has been applied = £6154 there is a NIL Gain arising

Carols main residence from Oct 2005 to March 2011 - so 65 months plus last 18 months of ownership plus 48 months abroad - max of 130 months

CAROL £200,000 (half share) x full exemption - no gain

So at this time to keep Arlington and move back in will produce a NIL gain for you both - but I appreciate that you may not return to 2018 but you can I am sure appreciate not only with the time of ownership lengthen so will the value - so I can only give you a snapshot in time as things are now, However as you we have NOT taken into account the costs to buy or sell OR utilised the full amount of private lettings due which can be up to a maximum of £40,000 AND we still did not use your annual exemption allowance for capital gains which amounts to £11,100 (current rate) for the year of sale, you have scope for the gain and to increase before a capital gain bill would arise.

We then have*****- I considered the implications of transferring it into your sole name - but as the profit made is smaller - to leave this intact is the most viable option IF you sell before you return - because then as non UK residents at the time of sale, and with the new capital gains regimes coming into play when non residents sell UK property - both of you will only be considered on the gain arising FROM 06/04/2015 to the date of sale (which would not be a massive amount) and you get the first £11,100 exempt - so working on an approx basis

Gain is £420,000 less £275.000 = £145,000 less capital improvements £20,000 = £125,000

Bought March 2011 and say sold April 2017 - total ownership 73 months

HMRC will be interested in the gain made from April 2015 to April 2017 - so 24 months

Gain £125,000 x 24/73 = £41095

PETER never lived there so £20548 less annual exemption allowances £11,100 = £9448 x (assume higher rate) 28% = £2645.44

CAROL same as Peters as the change of legislation would apply to you both even though you lived here pre April 2015 - so a total capital gain bill of (Max) 5290.88

If we made the full declaration of gain (so did not go by the new regime for non residents) then

Gain for each of you £62500 (as it would be on the whole period of ownership not just from April 2015)

PETER £62500 less annual exemption £11,100 = £51400 x 28% = £14392

CAROL £62500 x 21/73 = £17980 PPR = gain of £44520 less annual exemption £11,100 = £33420 x (Max) 28% = £9357.60

Total gain of £23749.60

And of course if you sell*****after you return to the UK then you WILL be charged as per this second example on the full gain.

Moving into Hall Court would not be the best way to mitigate capital gains - nor would selling both properties before your return -

Let me know if I can assist further

I am due to head out for a client appointment - but will answer any questions you have regarding my response on my return

Thanks

Sam

Customer: replied 5 months ago.
Sam
Thank you - this is most helpful.Thank you for your response.I have a couple of questions:We own rural land in Spain. There is no building on the land and we do not intend to sell. We may have plans to develop. Does this change anything?Arlington RoadI think you are advising that we move back into this property for a period of time to reduce the CGT liability to zero. For how long would we need to live in Arlington Road before selling?
*****
There are 2 scenarios:Option 1 - Sell whilst we are still resident in Kenya to reduce CGT liability to:
Peter £2645.44
Carol £5290.88 (is this correct???) or is the liability £1,481
Total liability £7936.32 (or is it £4,126.65)Option 2 – Sell after we return. CGT liability would be:
Peter £14,392
Carol £9,357.60
Total liability £23749.60Have I Understood correctly?
Customer: replied 5 months ago.
I do understand this figures are estimates based on figures today!
Thanks
Expert:  Sam replied 5 months ago.

Hi

Thanks for your response and further questions

If you develop before the sales/ returns to the Uk take place, then this does change the advsie given as then you cannot have Arlington treated as a main residence either

Yes I am advising that a move back to Arlington is the most tax efficient use of the capital gain reliefs and rules so a move back to Arlington can be for as little as a few months (so move back, put up for sale for example)

Re*****- if you sell before your return then the TOTAL Gain- capital gain bill of (Max) 5290.88 (this is for you both so £2645.44 each

If you sell after your return and did not return to live as a main residence then total capital gains tax Total gain of £23749.60 (Peter £14392 + Carol £9357.60)

So yes you have understood correctly

Do let me know if I can assist further. If you have all that you need, then it would be appreciated if you could rate for the level of service I have provided (or click accept0

Thanks

Sam

Sam, Accountant
Category: Tax
Satisfied Customers: 13704
Experience: 26 HMRC expertise, PAYE, Self Assessment ,Residency, Rental Income, Capital Gains, CIS ask for Sam Tax
Sam and other Tax Specialists are ready to help you
Customer: replied 5 months ago.
Sam
Many thanks for your helpful advice!
Carol
Expert:  Sam replied 5 months ago.

Hi Carol

You are very welcome and if you need figures updated prior to any action, then please do come back to Just Answer (the fees you pay for the service are an allowable deduction on the capital gain position!)

Thanks

Sam

Customer: replied 5 months ago.
Really! that's interesting. Are you able to send a receipt?
Expert:  Sam replied 5 months ago.

Hi

Thanks for your response

The receipt you can take from either your bank account (where the payment would come from) or from the Just Answer account - (Log on and then go into My Account) but we do not provide actual receipts I am afraid (the company is USA owned although we UK tax experts ,in the main, are UK based- I am in Kent!)

Thanks

Sam

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