Capital Gains Tax on UK Property

[Carrie]

Hi All,

I would be grateful for some advice regarding possible Capital Gains Tax on my property from an Australian tax perspective.

I purchased my home in Dec 2014 for £335,000 - it's always been my primary residence. I would like to move to Sydney permanently in January and rent my house out. I have contacted 2 tax specialists and they've said if I was to sell the property in 2 years time for £400,000 (it's currently worth that) I wouldn't have any CGT to pay in the UK, but they can't advise me on the Australia tax implications and suggest I speak with someone who can (a bit surprising since one is apparently an expat tax specialist). Can anyone shed some light on whether I may need to pay tax to the ATO? 

I understand I'd need to complete a tax return for the UK while living in Australia.

Thanks

[Alan Collett]

Hi Carrie.

In short - you might, or you might not.

There is a CGT exemption in Australia for a former main residence that is let - for up to 6 years, so long as you don't have another property treated as your main residence.

Subject to this I (or anyone else who is advising you) would have to "crunch the numbers" to reach a conclusion.

Don't forget the Non Resident Landlord scheme in the UK, and the requirement to submit a Non Resident CGT return in the UK, even if the property is sold without a capital gain arising.

And Inheritance Tax in the UK.

You are very welcome to send a private message to me to further explore these issues.

Best regards.

Edited October 14, 2018 by Alan Collett

[Carrie]

Thanks Alan, that's good to know - appreciate your reply.

[scubacam]

Hi guys I’m jumping on to this for some advice. We are on the fence about whether or not to sell. We purchased our home in 2015 for 460,000 and have lived in it ever since. We’d possibly consider renting it but hugely put off by the idea of filing tax returns and capital gains. I think right now it’s worth 500-515,000 but hopefully more in 2 years time.
Am I better to rid myself of the property than do the capital gains and tax return stuff ?

[Carrie]

That doesn't really worry me so much as the possible deterioration of the pound and/ or drop in property prices thanks to Brexit.

Edited October 21, 2018 by Carrie
added accuracy of intended statement

[scubacam]

That doesn't really worry me so much as the possible deterioration of the pound and/ or drop in property prices thanks to Brexit.

Our property hasn’t changed in value since referendum just not sure what the future holds. And the pound is at its highest in 2 years

[Alan Collett]

6 hours ago, scubacam said:

Hi guys I’m jumping on to this for some advice. We are on the fence about whether or not to sell. We purchased our home in 2015 for 460,000 and have lived in it ever since. We’d possibly consider renting it but hugely put off by the idea of filing tax returns and capital gains. I think right now it’s worth 500-515,000 but hopefully more in 2 years time.
Am I better to rid myself of the property than do the capital gains and tax return stuff ?

If you don't buy another property you may find you have a window of a couple of years or more before you have a capital gains tax liability in the UK.

You'll almost certainly have to complete tax returns in Australia anyway - so the additional compliance obligation is in the UK (Non Resident Landlord scheme, and the resulting need to submit a UK tax return).

Best regards.

[Marisawright]

6 hours ago, scubacam said:

Hi guys I’m jumping on to this for some advice. We are on the fence about whether or not to sell. We purchased our home in 2015 for 460,000 and have lived in it ever since. We’d possibly consider renting it but hugely put off by the idea of filing tax returns and capital gains. I think right now it’s worth 500-515,000 but hopefully more in 2 years time.
Am I better to rid myself of the property than do the capital gains and tax return stuff ?

Most Australians who own an investment property will hire a tax agent to do their tax returns.  It's not that expensive and you can claim the cost as an expense.  

In your shoes, I would strongly suggest you pay Alan Collett to do an analysis for you.  He'll take all your details and should be able to give you an accurate picture because he knows both tax systems so well.   It will be money well invested.

[can1983]

I've been looking at the non-resident landlord CGT declaration that must be made within 30 days of disposal.

For those of who have left the uk less than 18 months ago and are selling their only (worldwide) residence there is never going to be any CGT to pay in UK or Australia. You automatically get private residence relief on the last 18 months of ownership and Australia don't do CGT for former primary residences let out for only 18 months. I've played with all sorts of silly high gains and non-resident periods in the HMRC website calculator to test this. I think PIO members should be aware that whilst the requirement to lodge must be followed this is really nothing to worry about or require paying an accountant for if people move first sell later within these timeframes.

 

[Alan Collett]

https://www.rossmartin.co.uk/sme-tax-news/3704-budget-2018-cgt-private-residence-relief-changes

Deemed main residence period reducing to 9 months following the UK Budget earlier this week.

Best regards.

[can1983]

46 minutes ago, Alan Collett said:

https://www.rossmartin.co.uk/sme-tax-news/3704-budget-2018-cgt-private-residence-relief-changes

Deemed main residence period reducing to 9 months following the UK Budget earlier this week.

Best regards.

from April 2020, so anyone selling (completing) before April 2020 would get 18 months

[Alan Collett]

8 minutes ago, can1983 said:

from April 2020, so anyone selling (completing) before April 2020 would get 18 months

Agreed, but you might be surprised for how long these threads are looked at.

I'd also say (respectfully) that just because you consider the completion of the NRCGT return a straightforward exercise doesn't mean others will feel the same way.

It is akin to the well worn discussion about whether or not to use a migration agent to assist with the visa application process.   Some do.   Some don't.   One size doesn't fit all.

Best regards.

[can1983]

7 minutes ago, Alan Collett said:

Agreed, but you might be surprised for how long these threads are looked at.

I'd also say (respectfully) that just because you consider the completion of the NRCGT return a straightforward exercise doesn't mean others will feel the same way.

It is akin to the well worn discussion about whether or not to use a migration agent to assist with the visa application process.   Some do.   Some don't.   One size doesn't fit all.

Best regards.

Yes I appreciate that some people wont feel comfortable doing it themselves. My point was that its easy to think that paying capital gains at 40% on profits gained on your only home (possibly the only home you have ever owned) is a terrifying prospect. The reality is that at the moment buying a house as your main residence for 100k 2 years ago spending nothing and selling 6 months after you left the uk for 10 million your wont pay a penny in tax (an extreme example)

[Sydney Boy]

key points that I have learned.

1. When you sell a property in the UK as  non resident you have 30 days to fill in a non resident Capital Gains Tax form (NRCGT) and send it to HMRC.  30 days from sale so you have to be quick to avoid a 100 pound fine. This is even if you owe zero tax or its your primary residence. You can fill the form in online yourself.  

2. The calculation of capital gain for the Australian Tax office is worked out in Australian Dollars not pounds. To work out the purchase price you use the exchange rate at the TIME of the purchase  ( or if you already owned it when you moved to Australia its the estimated price on the day you moved to Australia using the exchange rate when you moved here ) and  the sale price uses the exchange rate at the TIME when you sell the property.  ( If you are lucky you may find you make a loss in Dollars even if you made a profit in pounds if the exchange rate went the wrong way. E.g you moved here in 2002 when the rate was 1GBP=3AUD and its now 1GBP=1.77AUD

3. See Point 1  : You have 30 days to fill in the form.  It even applies if 

• there is no tax to pay;
• a loss has been made;
• taxpayer is registered for self assessment;
• registered with HMRC for corporation tax; and
• taxpayer is registered to report under annual tax on enveloped dwellings (ATED) or ATED-related capital gains tax returns

 

[Alan Collett]

Don't overlook a consideration of the forex rules when you redeem a non-AUD mortgage on an investment property.

Best regards.