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Peter, Chartered Tax Advisor
Category: Finance
Satisfied Customers: 160
Experience:  Director at PDS Tax Limited
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Do you advise on UK capital gains tax laws after an overseas

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Hi there, Do you advise on UK capital gains tax laws after an overseas property was inherited?
Assistant: What are the assets or property for this capital gain?
Customer: I inherited 50% of a property in Australia after my mother’s recent death. I am selling my 50% share to my sister. There is a small capital gain since probate was completed. My mother was only domicile in australia but I live in the UK.
Assistant: Anything else you want the Accountant to know before I connect you?
Customer: My questions are: 1. will I have to pay capital gains tax in the UK on the increase in property value since private. Australian tax law I exempts capital gains for 2 years after the inheritance. 2. Am I correct that no UK inheritance taxes are payable by me as my mother was only domilice in Australia and her only assets were in Australia.

Hi, my name is ***** ***** I am a UK Chartered Tax Advisor. Please can you advise what the increase in market value has been since your mother's death?

Kind regards, Peter

Customer: replied 11 months ago.
The probate documents understated the market value. The gain from the probate listed value to the sale price was AUD$400k of which I have a 50% share . So $200k is the gain relevant to me.
Customer: replied 11 months ago.
If HMRC would accept it I can show real estate valuations showing that the listed probate market value was understated. Probate was granted in Dec 2018. My sale to my sister will be in Sept 2019.

Thank you for clarifying.

You are correct that no UK inheritace tax is payable by your non-UK domiciled mother on a non-UK situate property.

For UK tax purposes you are treated as receiving the property at it's "market value" when your mother died. The market value of the property will be the price which that asset might reasonably be expected to fetch on a sale in the open market. Since the property was not exposed to the open market when you inherited it, it can be tricky to determine (and not the same as the probate value if that was understated).

Since you will be gifting the property to a connected person (i.e. your sister) you are treated as selling it at (again) it's open market value. So to summarise, you will be subject to UK capital gains tax on the increase in market value from Dec 2018 to Sept 2019. There are no exemption savailable to you, but I hope you will find that the increase in market value should mean there is not much CGT to pay.

Also bear in mind currency fluctuations. The market values need to be calculated in GBP as at Dec 2018 and Sept 2019 so the gain may be more or less than you expect.

The property will also be subject to stamp duty land tax if your sister is buying it from you for consideration greater than £125,000, as apposed to a gift. I assume there is no mortgage on the property.

Please let me know if you have any further questions?

Kind regards, Peter

Customer: replied 11 months ago.
Hi Peter,Many many thanks for the reply, it helps tremendously.To clarify, I am selling the property to my sister and will bring a substantial amount into the UK.Just two more questions:
- what documentation does HMRC use to establish market value typically? Real estate agent valuations?
- you mention stamp duty. Do you mean stamp duty payable in Australia? Or do I need to pay a UK stamp duty for selling my half of an overseas property?Thanks again,Andrew

Hi Andrew

Sorry this is a non-UK property so there would of course be no liability for SDLT. Apologies.

There are two routes you can go down for evidencing market values:

1. Estate agent reports (I would suggest more than one)

2. A report from a professional property valuer (in the UK we would call this a 'red book' RICS valuation)

HMRC use their own people and methods to estimate the value off-market property transactions, but the method they use will be something closer to 2.

There is no guarantee that HMRC will accept valuation evidence of either method but if the sums of money involved are significant I would recommend you look into getting a professional valuation done. Typically red book valuations in the UK are expensive and not cost effective but seen as better evidence than estate agent valuations.

I hope all is clear?

Kind regards, Peter

Peter and other Finance Specialists are ready to help you
Customer: replied 11 months ago.
Many thanks Peter, this is great information. Greatly appreciated.
Customer: replied 11 months ago.
Hi Peter, sorry I thought of one more question. I’m going to bring the proceeds of the property sale into the UK. With such a large sum of money, should I be proactively informing HMRC about it, including the valuation information. Or is it better in these circumstances to do nothing?

Hi again. You don't need to do anything in addition to including the disposal on your tax return. If HMRC want to see any evidence of valuations they will ask for it.

Kind regards, Peter