Capital Gains Tax on UK property due in Australia?

[Wanderer Returns]

I've just reported the capital gain on the recent sale of my UK property to the HMRC, as I'm now resident in Australia. Thankfully there was no CGT to pay based on the HMRC calculation (a gain of about £14,000, but it had been our primary residence for two years). Am I now required to report this gain to the ATO on my next tax return, and would I be liable for CGT here instead? I am an Australian citizen, and Australian resident for tax purposes.

(Apologies if this question has been asked previously, but a search didn't bring anything up)

[Ken]

On 09/04/2021 at 18:48, Wanderer Returns said:

I've just reported the capital gain on the recent sale of my UK property to the HMRC, as I'm now resident in Australia. Thankfully there was no CGT to pay based on the HMRC calculation (a gain of about £14,000, but it had been our primary residence for two years). Am I now required to report this gain to the ATO on my next tax return, and would I be liable for CGT here instead? I am an Australian citizen, and Australian resident for tax purposes.

(Apologies if this question has been asked previously, but a search didn't bring anything up)

As an Australian citizen (or PR) living in Australia you are liable to pay tax in Australia on your Capital Gains Worldwide. However you probably won't need to pay any tax in this instance, and even if you do it won't be much.

Was this the only property you owned at the time you sold it? There's a principal private residence exemption in Australia just as there is in the UK and in Australia you can keep a property as your principal private residence for up to 6 years after you ceased living there.

Unfortunately you can only have one principal private residence at a time (other than for a six month bridging while you are buying and selling). But if you are out of luck there, then you are still only liable for the gain made in the period you were resident in Australia - i.e. the base for the gain is not what you paid for the property but how much it was worth when you moved to Australia. This can be based on a valuation or upon averaging the gain across the periods. Because you owned the property for more than 12 months you are also eligible for the 50% discount, so you only have to pay tax on half the gain in this period.

A lot of people ask about the double taxation agreement. Had you had to pay any tax in the UK you would be able to deduct the amount paid from the Australian tax due under the double taxation agreement - but as in your instance when you haven't paid anything in the UK you can't claim that you are being double taxed.

Feel free to PM me if you need more detailed assistance.

[Wanderer Returns]

3 hours ago, Ken said:

As an Australian citizen (or PR) living in Australia you are liable to pay tax in Australia on your Capital Gains Worldwide. However you probably won't need to pay any tax in this instance, and even if you do it won't be much.

Was this the only property you owned at the time you sold it? There's a principal private residence exemption in Australia just as there is in the UK and in Australia you can keep a property as your principal private residence for up to 6 years after you ceased living there.

Unfortunately you can only have one principal private residence at a time (other than for a six month bridging while you are buying and selling). But if you are out of luck there, then you are still only liable for the gain made in the period you were resident in Australia - i.e. the base for the gain is not what you paid for the property but how much it was worth when you moved to Australia. This can be based on a valuation or upon averaging the gain across the periods. Because you owned the property for more than 12 months you are also eligible for the 50% discount, so you only have to pay tax on half the gain in this period.

A lot of people ask about the double taxation agreement. Had you had to pay any tax in the UK you would be able to deduct the amount paid from the Australian tax due under the double taxation agreement - but as in your instance when you haven't paid anything in the UK you can't claim that you are being double taxed.

Feel free to PM me if you need more detailed assistance.

Thank you @Ken, this information is most appreciated. I have only ever owned one property at a time, so my home in the UK was my principal private residence until it was sold back in February. According to this, it would seem unlikely that I'll have to pay CGT here in Australia. I assume I will have to declare the disposal of the property on my Australian tax return at the end of the current financial year, even though it was my primary residence?

[Ken]

3 hours ago, Wanderer Returns said:

Thank you @Ken, this information is most appreciated. I have only ever owned one property at a time, so my home in the UK was my principal private residence until it was sold back in February. According to this, it would seem unlikely that I'll have to pay CGT here in Australia. I assume I will have to declare the disposal of the property on my Australian tax return at the end of the current financial year, even though it was my primary residence?

That's a very sound assumption. You would think you would have to do that, but no. The rules are that when the Main Residence rules apply (and even when you theoretically "electing" to apply them to a period after you stopped living there) you ignore the capital gain - meaning it isn't reported at all. If I was designing the tax form I'd have a box for the gain and another for the main residence deduction but the ATO have a much more Cavalier approach and just don't want to know anything.

Edited April 11, 2021 by Ken

[Wanderer Returns]

7 hours ago, Ken said:

That's a very sound assumption. You would think you would have to do that, but no. The rules are that when the Main Residence rules apply (and even when you theoretically "electing" to apply them to a period after you stopped living there) you ignore the capital gain - meaning it isn't reported at all. If I was designing the tax form I'd have a box for the gain and another for the main residence deduction but the ATO have a much more Cavalier approach and just don't want to know anything.

If it's good enough for them, it's good enough for me! I like it when people make things simple

[Alan Collett]

If you had a loan secured on the property don't forget the need to consider the currency gain or loss arising on the redemption of the loan for the purpose of your Australian tax.

Feel able to contact me if you think you might need help and would like a freebie chat.

Best regards.

[Melbpom]

On 11/04/2021 at 17:24, Ken said:

As an Australian citizen (or PR) living in Australia you are liable to pay tax in Australia on your Capital Gains Worldwide. However you probably won't need to pay any tax in this instance, and even if you do it won't be much.

Was this the only property you owned at the time you sold it? There's a principal private residence exemption in Australia just as there is in the UK and in Australia you can keep a property as your principal private residence for up to 6 years after you ceased living there.

Unfortunately you can only have one principal private residence at a time (other than for a six month bridging while you are buying and selling). But if you are out of luck there, then you are still only liable for the gain made in the period you were resident in Australia - i.e. the base for the gain is not what you paid for the property but how much it was worth when you moved to Australia. This can be based on a valuation or upon averaging the gain across the periods. Because you owned the property for more than 12 months you are also eligible for the 50% discount, so you only have to pay tax on half the gain in this period.

A lot of people ask about the double taxation agreement. Had you had to pay any tax in the UK you would be able to deduct the amount paid from the Australian tax due under the double taxation agreement - but as in your instance when you haven't paid anything in the UK you can't claim that you are being double taxed.

Feel free to PM me if you need more detailed assistance.

I have a similar but slightly different query.

I sold a flat in the UK early December 2019 that I'd been using as a primary residence. It was never rented out.

In the meantime I bought a house in Australia in August 2019. However the house was tenanted at the time and I didn't move in until the tenants moved out in mid December 2019.

Would this UK flat still be covered by the CGT exemption in this case?

[Ken]

On 07/05/2021 at 21:06, Melbpom said:

I have a similar but slightly different query.

I sold a flat in the UK early December 2019 that I'd been using as a primary residence. It was never rented out.

In the meantime I bought a house in Australia in August 2019. However the house was tenanted at the time and I didn't move in until the tenants moved out in mid December 2019.

Would this UK flat still be covered by the CGT exemption in this case?

Based on the circumstances you've described then yes the CGT exemption should apply (for Australian Tax). You shouldn't be able to claim the house in Australia as a primary residence prior to December since you hadn't lived in it (if you'd lived in it first and then rented it out that would be different).

Furthermore there are special rule surrounding moving house. Basically if you've lived in a house for at least 3 months in the year before you sold it, you can treat both your old house and your new house as your primary residence for the purpose of the exemption for up to six months. Unfortunately it doesn't apply where a house is rented out so you should still expect to be stung for the Capital gain between August 2019 and December 2019 when you eventually sell your new house. As the rules currently stand you would however be taxed on only 50% of that gain.

[Melbpom]

Thank you Ken, this is the answer I was hoping for. I had read about the 6 month rule on the ATO website and one of the examples mentioned a property being rented out and therefore not considered a primary residence during that period, so I was hopeful that that applied to me.

It didn't occur to me at the time of purchase (of new Australian house) about CGT. It will probably cost me more than the rent received and the proportion of land tax paid, but I will deal with that when it happens.

Again, thank you.

 

[Ken]

6 minutes ago, Melbpom said:

Thank you Ken, this is the answer I was hoping for. I had read about the 6 month rule on the ATO website and one of the examples mentioned a property being rented out and therefore not considered a primary residence during that period, so I was hopeful that that applied to me.

It didn't occur to me at the time of purchase (of new Australian house) about CGT. It will probably cost me more than the rent received and the proportion of land tax paid, but I will deal with that when it happens.

Again, thank you.

 

If you didn't have another primary residence at the same time (which depending on when in December you moved in to your new home seems to be the case) then it wouldn't have mattered if you had rented out your UK home, you'd still be entitled to the primary residence exemption.

[Melbpom]

3 minutes ago, Ken said:

If you didn't have another primary residence at the same time (which depending on when in December you moved in to your new home seems to be the case) then it wouldn't have mattered if you had rented out your UK home, you'd still be entitled to the primary residence exemption.

I was only resident in the UK flat for 2.5 months out of the 12 months prior to the sale of the property. The sale took a long time due to time wasters. Therefore I don't think I'm eligible for the 6 month rule. I think it is safer for me to rely on the primary residence rule and that is more luck than judgement.

[Ken]

7 minutes ago, Melbpom said:

I was only resident in the UK flat for 2.5 months out of the 12 months prior to the sale of the property. The sale took a long time due to time wasters. Therefore I don't think I'm eligible for the 6 month rule. I think it is safer for me to rely on the primary residence rule and that is more luck than judgement.

Don't sweat it. Unless there was an overlap in December the six month rule is irrelevant for you as you only had one primary residence at a time.

[Andy123]

HI

Been in Oz for 10 years and own a UK property, if i sell will i have to pay CGT? Renting here, that is the only property i own and been rented out all the time i have been here.

Thanks for any advise

[Alan Collett]

13 minutes ago, Andy123 said:

HI

Been in Oz for 10 years and own a UK property, if i sell will i have to pay CGT? Renting here, that is the only property i own and been rented out all the time i have been here.

Thanks for any advise

Hi Andy.

You certainly need to run the numbers to establish the tax position - in the UK as well as in Australia (probably - subject to your visa status).

Best regards.

[Marisawright]

3 hours ago, Andy123 said:

HI

Been in Oz for 10 years and own a UK property, if i sell will i have to pay CGT? Renting here, that is the only property i own and been rented out all the time i have been here.

Thanks for any advise

Yes I'd say you will.  If you lived in your UK property for at least a year before you rented it out, then it qualifies as your principle residence, which means it's exempt from capital gains for the first six (I think) years after you moved out.  However, the gain after that will be taxable. Best to get someone like Alan (who replied to you) or Ken (who posted earlier) to do your tax return for you when you need to declare it.  There's a lot of faffing about, adding back in depreciation claimed etc, not to mention working out what the capital gain has actually been.  

I'm assuming you've been declaring your rental income on your Aussie tax return.

[RSL]

I've found reading the above responses really insightful, people clearly know their stuff on here - great! Thank you in advance for any advice / information given. I have my own query that I'd like conformation of:

I bought in UK in April 2014. Due to tragic unforeseen family circumstances, my Australian partner moved back to Australia later in the year and after a few months said she would not be able to come back to the UK. I ended up following her over here in October 2014. I've rented out that property ever since. We bought our first Australian property in November 2017 and have lived here ever since, with our now two kids.

I am looking to sell my UK property at the back end of next year. Am I correct in thinking that I will pay Capital Gains in the UK of 28% of any gains made over £12,000, or is it any gains that were made after I moved out? My second question is what are the expectations of me also paying Capital Gains over here too? This will call the 'double taxation agreement' into play it sounds. How does this work? After I transfer the money over to my Australian account, I then lodge this in my tax return with the ATO. Is there a section that will allow me to quote how much UK CGT I've paid and this automatically gets offset? Or will there be a huge tax bill for me to claim back at a later date?

[Alan Collett]

Hello RSL.

You'll be required to consider capital gains tax in the UK and in Australia.

UK CGT is charged at 18% initially.   Then 28%.  

There's a need to file a special CGT return with HMRC and to pay any CGT owing within 30 days of a property sale completing.

Don't be late if you want to avoid a late filing penalty and interest.

If you are claiming the 50% CGT discount in Australia you can only claim 50% of the UK CGT as a Foreign Income Tax Offset in Australia.

If you'd like a freebie chat please feel able to complete the enquiry form at www.bdhtax.com

Best regards.

[RSL]

Thanks Alan,

I did find some additional information that suggested I would only pay tax on capital gains made after April 2015.

Only having 30 days after the sale to file the special CGT return is also of upmost importance, so I thank you for that information.

You say: 'If you are claiming the 50% CGT discount in Australia you can only claim 50% of the UK CGT as a Foreign Income Tax Offset in Australia', are you able to explain this any more as I can't quite get my head around it...

I may well take you up on your offer of a chat closer to the time next year.

Best

[Alan Collett]

40 minutes ago, RSL said:

Thanks Alan,

I did find some additional information that suggested I would only pay tax on capital gains made after April 2015.

Only having 30 days after the sale to file the special CGT return is also of upmost importance, so I thank you for that information.

You say: 'If you are claiming the 50% CGT discount in Australia you can only claim 50% of the UK CGT as a Foreign Income Tax Offset in Australia', are you able to explain this any more as I can't quite get my head around it...

I may well take you up on your offer of a chat closer to the time next year.

Best

For background re the foreign income tax offset in Australia for tax paid on the capital gain in the UK, here's a link to the legal case that supports the ATO's position:

https://www.ato.gov.au/Media-centre/Media-releases/Court-confirms-ATO-position-on-foreign-income-tax-offsets/

Hope this helps.

Edited August 12, 2021 by Alan Collett

[AkMil]

Hello, I have a CGT question on a property in the UK which I am in the process of selling. It was my main residence for many years, however, in the last few years it was rented out as I moved to NSW. I am renting a property here, looking to sell the UK property and move money across to Australia to buy a property to live in with my family. There is a loan on the property in the UK, after it is repaid back, it will leave some profit. I assume I will need to pay CGT in the UK on that even in proceeds are used to purchase a home to live here in NSW? 

Not sure if anyone knows the answer to the above and if not, does anyone know an international tax professional I could speak to? 

[Alan Collett]

49 minutes ago, AkMil said:

Hello, I have a CGT question on a property in the UK which I am in the process of selling. It was my main residence for many years, however, in the last few years it was rented out as I moved to NSW. I am renting a property here, looking to sell the UK property and move money across to Australia to buy a property to live in with my family. There is a loan on the property in the UK, after it is repaid back, it will leave some profit. I assume I will need to pay CGT in the UK on that even in proceeds are used to purchase a home to live here in NSW? 

Not sure if anyone knows the answer to the above and if not, does anyone know an international tax professional I could speak to? 

Feel able to complete the enquiry form at bdhtax.com if you would like a freebie initial chat.

Best regards.

Edited December 20, 2021 by Alan Collett

[BrisSyd]

Hello, thanks for a really useful thread. We are thinking about selling our house in UK. We bought it in 2010, lived there for two years before moving to Oz. It was then rented out from 2012 - 2018. We returned to UK for a year in 2018-19. The property was our main residence for a month and then we rented it out again as we had to move cities due to work in UK. We returned to Oz in early 2019 and it has been rented up until now. We bought a place in Oz in 2020. If we decided to sell UK place would we eligible for 6 year rule for 2 periods up until we bought our place in Oz in 2020? Many thanks

[Alan Collett]

3 hours ago, BrisSyd said:

Hello, thanks for a really useful thread. We are thinking about selling our house in UK. We bought it in 2010, lived there for two years before moving to Oz. It was then rented out from 2012 - 2018. We returned to UK for a year in 2018-19. The property was our main residence for a month and then we rented it out again as we had to move cities due to work in UK. We returned to Oz in early 2019 and it has been rented up until now. We bought a place in Oz in 2020. If we decided to sell UK place would we eligible for 6 year rule for 2 periods up until we bought our place in Oz in 2020? Many thanks

Not sure a month is sufficient to re-start the 6 year clock.

If you think you'd like this considered more fully by way of a tax opinion please feel able to send a private message to me.

Best regards.

[Rosm]

Great thread but doesn’t quite cover my situation. I am now a UK non resident. In September 2021 I took ownership of a house in Uk which was rented out. I sold it a some months later. There was a small gain after deducting selling and buying costs. This gain is less than the UK CGT allowance hence there is no CGT to pay in the Uk. I became an Australian citizen in 2021 and was permanent resident for 2 years before that. Could I please have advice as to whether I will pay Australian CGT which I believe is at my income tax rate even though I will have no CGT to pay in the UK because of the CGT allowance there? Thank you

[Alan Collett]

1 hour ago, Rosm said:

Great thread but doesn’t quite cover my situation. I am now a UK non resident. In September 2021 I took ownership of a house in Uk which was rented out. I sold it a some months later. There was a small gain after deducting selling and buying costs. This gain is less than the UK CGT allowance hence there is no CGT to pay in the Uk. I became an Australian citizen in 2021 and was permanent resident for 2 years before that. Could I please have advice as to whether I will pay Australian CGT which I believe is at my income tax rate even though I will have no CGT to pay in the UK because of the CGT allowance there? Thank you

The UK CGT annual exemption is of no relevance to the amount of the capital gain that is to be included on your Australian tax return.

A couple of questions (if I may):

>   You've lodged the required CGT form with HMRC in the UK?

>   You have a CGT computation prepared under Aus tax rules?

Best regards.