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TonyTax
TonyTax, Tax Consultant
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I have a friend who came to the UK from Australia in August

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Good afternoon
I have a friend who came to the UK from Australia in August 2008. At the time he owned 3 properties in Australia - primary residence plus 2 BTL properties.
The primary residence was also rented since August 2008 and then sold 4 years later for no CGT (there is a six year rule in Australia as long as no other Australian residence is declared you can sell CGT free).
The friend is now considering declaring all rental income etc from the 3 Australia properties on her next tax return in the U.K. (Going back to 2008).
Obviously there will be tax due on the rental income but will she also be liable for CGT Ono the primary residence (she bought a new house in the U.K. in 2009 and has lived in that property since).
Am I correct in thinking 1/4 of the CGT will be due as uk laws prior to April 2014 give you 3 years to sell? Or will the entire CGT be due in the UK?
Thanks
Submitted: 7 months ago.
Category: Tax
Expert:  TonyTax replied 7 months ago.

Hi. My name is*****'m looking at your question now and will post my answer or ask for more information here in a short while.

Customer: replied 7 months ago.
Ok thanks Tony.
Expert:  TonyTax replied 7 months ago.

CGT in the UK doesn't work in the same way as it does in Australia where the assets of an immigrant are valued at the time that individual arrives in Australia so that only the gain which accrues since their arrival is taxed. The whole period of ownership is taken into account in the UK so if your friend was UK tax resident in the tax year he or she sold what was their main home in Australia, there may be CGT to pay in the UK.

Take a look at HS283 here, in particular Example 9. As a proportion of the whole gain, that part covered by the owners's occupation of the property will be exempt from CGT as will that part of the gain covered by the last three years of ownership. Letting relief will also be due for any period not covered by the owner's occupation of the property and the last three years of ownership. That will be the lesser of:

1 £40,000,

2 the sum of the gain covered by the owner's occupation of the property and the gain for the last three years of ownership and

3 the gain for that part of the letting period not covered by the periods in 2 above, (probably 1 year of the last 4 years of ownership)

If there is a UK liability to CGT, had any CGT paid in Australia on the same gain, it would have been deductible from the UK liability.

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

Customer: replied 7 months ago.
If I'm reading your reply correctly only the last year out of the 4 years would be liable for CGT ie sold in 2012 so only 2011-2012 period would be liable?
There was absolutely no CGT liable in Australia as discussed as they have a 6 year rule and age left Australia in August 2008 and sold in August 2012. Prior to August 2008 back until 2001 when she bought the property she was living in it in Australia as main residence.
Please confirm my understanding by looking at your example that only 2011-2012 gain is liable for CGT in the UK?
Thanks.
Jamie
Customer: replied 7 months ago.
I am looking at this quote:
"...As a proportion of the whole gain, that part covered by the owners's occupation of the property will be exempt from CGT as will that part of the gain covered by the last three years of ownership..."
Customer: replied 7 months ago.
She bought in 2001 - lived solely in property in Australia. Left Australia in August 2008 for U.K. And sold in August 2012.
Customer: replied 7 months ago.
Also she is an Australian citizen since birth having lived there from birth until August 2008
Expert:  TonyTax replied 7 months ago.

As I said in my previous post, the whole period of ownership is taken into account for UK CGT purposes, ie 2001 to 2012. Assuming the property was occupied by your friend from the month in 2001 she bought it until the month in 2008 she moved out, that part of the gain will be exempt from CGT. That leaves 4 years or so. The last 3 years of ownership will also be an exempt period. The remaining year will probably be covered by letting relief.

As a non-UK domiciled individual, ie not British, the only way your friend could avoid UK CGT if there was a net taxable gain which I doubt would have been not to remit the gain from the sale of the Australian property to the UK. See section 9 of RDR1 here.

Customer: replied 7 months ago.
Thanks for the reply Tony.So the year which is potentially assessable for CGT is likely covered by the letting relief (obviously depending on size of gain)With regard to the letting relief does it also reduce the tax payable on the rent received over that 4 year period.None of the money was remitted back to the uk. However she is now a U.K. Citizen since 2012 I believe.Thanks.
Expert:  TonyTax replied 7 months ago.

Letting relief cannot used against rental income.

If there is no taxable gain in the UK after all reliefs, there is no need to make a claim for the remittance basis of assessment to apply. It may be too late to make such a claim in any event.

Customer: replied 7 months ago.
Thanks for all your responses Tony.I'm not sure what basis she nominated in the 2009 to 2013 UK tax years but as you say. There was probably no CGT left after the letting relief.I think the property was bought for AUD$420,000 in May 2001 and sold in August 2012 for AUD$950,000. So assuming only 1/11 years is assessible (and she wasn't on the remittance basis) this would be approximately AUD$48,000 assessible.Would the letting relief be sufficient to wipe out this gain?One last question - if she was on the remittance basis from 2009-2013 tax years - then only 2014 tax years onwards the Australia income would be assessible (assuming none of the funds were remitted to the UK) - correct?Thanks once again.
Expert:  TonyTax replied 7 months ago.

I would need to know the UK currency equivalents of the purchase price as at May 2001 and the selling price as at August 2012.

You have to make a claim for the remittance basis to apply for a tax year when unremitted income is £2,000 or more in a tax year. You do that by completing tax returns. Once a non-UK domiciled individual has been in the UK for seven of the nine previous tax years, if they want to use the remittance basis, it will cost £30,000 per tax year to do so (the remittance basis charge). It will be less expensive in most cases to pay UK tax on worldwide income unless the non-UK income that isn't remitted to the UK is very high.

Customer: replied 7 months ago.
Thanks Tony. You can use 50% as a conversion from Australian dollars to ponds i.e. AUD$2 =£1
Thanks.
Jamie
Expert:  TonyTax replied 7 months ago.

You have to use the rates effective at the time of purchase and sale. Are you saying that the exchange rate was the same in May 2001 as it was in August 2012?

Expert:  TonyTax replied 7 months ago.

If the gain was £265,000 (A$950,000 / 2 - A$420,000 /2), then the gain will be split between the period of occupation by the owner (including the last 36 months of ownership) and the letting period as follows:

Occupation and last 36 months gain (exempt): £241,618 (£265,000 / 136 months x 124 months)

Letting period gain: £23,382 (£265,000 / 136 months x 12 months)

Letting relief: £23,382 (lesser of £40,000, £241,618 and £23,382)

Taxable gain: £0

Customer: replied 7 months ago.
Thanks Tony. The exchange rate would not be that different to make the figure above £40,000.So I am confident that my friend would have no CGT due.
Expert:  TonyTax replied 7 months ago.

Thanks.

Would you mind rating my answer before you leave the site please.

TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15884
Experience: Inc Tax, CGT, Corp Tax, IHT, VAT.
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