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TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15979
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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Tax on capital gain flat. This is a question

Customer Question

Tax on capital gain for residential flat.
This is a question on behalf of my friend -
I have a flat in central London which I have been using for our own use. Few months ago we shifted to India for a short term and rented out flat out. We don't have any other property in UK or anywhere else. Also, I am in the process of separation from my husband and as part of that we would like to sell this flat & settle the mortgage which is in our joint name. I wanted to understand the tax implications of any capital gains arising out of this sale. Both me & my husband are british citizen.
Please let me know if you need any more info
Submitted: 3 years ago.
Category: Tax
Expert:  TonyTax replied 3 years ago.

Are your friends UK domiciled? You can read about domicile here. Is the property their main home? Why have they gone to India, eg work or holiday, another reason? Do they intend to return to the UK before they sell the flat?
Customer: replied 3 years ago.
Let me come back to you on this in a shortwhile.
Expert:  TonyTax replied 3 years ago.


See chapter 5 of RDR1 here for information on domicile.

Customer: replied 3 years ago.
Yes they are UK Domiciled ( I assume that Domiciled means that they still hold british citizenship). They are temporarily in India for for about 8 months and plan to shift back by Summer of 2016.They will have couple of short trips to UK in the interim
The reason for their stay in India is that this temporary relocation will give their 1 year old daughter a chance to live with grand parents.
They have not yet decided whether they will return to UK permanantly before/ at the same time selling the property or sometime later in 2016.
Please can you advise tax implication for both the scenarios.
Let me know if you have any more questions.
Expert:  TonyTax replied 3 years ago.

Leave this with me while I draft my answer.
Expert:  TonyTax replied 3 years ago.

Hi again.

You should refer to HS283 as part of this answer.

The fact that the couple intend to move back to the UK means that they are really still UK resident for tax purposes. In order to escape Capital Gains Tax in the UK, they would need to stay abroad for at least 5 years and sell a property which has not been their main home for the entire period of ownership plus a maximum of the last 18 months of ownership whilst abroad.

Having said that, from 6 April 2015, non-residents will be taxed on gains made on the disposal of UK residential property but only on the difference between the sale price and the value of the property on 5 April 2015, again unless the property has been the main home for the entire period of ownership plus a maximum of the last 18 months of ownership when they were not living there.

If the property has been your friends' main home throughout their ownership of it, then any gain will be exempt from CGT under the main residence rules provided it is sold within 18 months (36 months for disposals by 5 April 2014) of their having moved out. If the sale takes longer, then part of the gain may not be covered by main residence relief but letting relief would cover or reduce the remaining taxable gain. See the examples on page 4 of HS283. Information on letting relief can be found on pages 6 and 7.

You should read the notes on divorce and tax here. If the couple separated and one of them moved out of the property and it wasn't sold for a period beyond 18 months after that, then part of the gain of the spouse who moved out may be taxable.

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

Customer: replied 3 years ago.
Let me get back to you after checking with my friend if your reply satisfy their questions.
Expert:  TonyTax replied 3 years ago.
OK, thanks.