Capital Gains Tax on UK property due in Australia?

[Ken]

53 minutes 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

Yes, you will have Australian CGT on the full gain. Based on what you've said you were an Australian tax resident (and not a temporary resident) for the whole time you held the asset and you held it for less than a year so no discount.

You also say that the house was rented out. You also have to pay Australian tax on that rental income (less expenses).

Note though you say you "took ownership" rather than bought. Depending on how you "took ownership" there's a possibility there may be an exemption that gives you time to dispose of the asset without a CGT consequence.

Also note that you should compare the AUD value on acquisition with the AUD value on sale. While looking at it in GBP might give a small gain you may find there a small loss in AUD due to FX rate changes.

Having no CGT to pay in the UK due to UK CGT allowances does not change your Australian CGT liability other than to give you no UK tax to offset against your Australian tax bill.

[Rosm]

Hello Ken. Thanks for your reply. I was gifted the property in September 2021 and it was sold in August 2022. It would be great if there was an exemption especially as I now realise that keeping it for a year may have been beneficial. I have been an Australian tax resident for the whole time. I will check out the AUD values.

 

 

[Rosm]

Thank you, Alan. No I haven’t lodged anything yet and I do not have CGT prepared under Australian tax rules

[Alan Collett]

1 minute ago, Rosm said:

Thank you, Alan. No I haven’t lodged anything yet and I do not have CGT prepared under Australian tax rules

https://www.gov.uk/guidance/capital-gains-tax-for-non-residents-uk-residential-property

Suggest you might have a look at the UK compliance requirement to submit a CGT return with HMRC within 60 days of a sale completing - whether or not there's any CGT to pay to HMRC.

Please feel able to ping an email or private message to me if you need any assistance with this.

Best regards.

[Rosm]

Thanks again, Alan. That’s very helpful. Can I ask when I would notify for the Australian tax?

[Ken]

13 minutes ago, Rosm said:

Can I ask when I would notify for the Australian tax?

There's no notification as such for Australian tax. Assuming August 2022 is the correct date of sale then it will be reported as part of your FY2023 tax return - which if you do via a tax agent could be due as late as May 2024. The date of sale of a UK property is normally accepted as being the date that contracts were exchanged.

[Ken]

56 minutes ago, Rosm said:

Hello Ken. Thanks for your reply. I was gifted the property in September 2021 and it was sold in August 2022. It would be great if there was an exemption especially as I now realise that keeping it for a year may have been beneficial. I have been an Australian tax resident for the whole time. I will check out the AUD values.

 

 

No, if it was simply a gift that's not going to help. I was wondering if it had been inherited - although even that wouldn't get you a full exemption since it was rented but there'd still be a possibility of a partial exemption. Presumably you had an independent valuation done to establish the cost in September 2021? 

[Alan Collett]

1 hour ago, Rosm said:

Thanks again, Alan. That’s very helpful. Can I ask when I would notify for the Australian tax?

You include the capital gain or loss on your 2023 Aus tax return.

Best regards.

[Rosm]

A big thank you to both Ken and Alan. I’ve calculated the value at the relevant exchange rates and based on this there is no gain. As there is no gain on this basis would I still declare it on my Australian tax return. Once again, a big thank you.

[Marisawright]

38 minutes ago, Rosm said:

A big thank you to both Ken and Alan. I’ve calculated the value at the relevant exchange rates and based on this there is no gain. As there is no gain on this basis would I still declare it on my Australian tax return. Once again, a big thank you.

I'm pretty sure you still have to declare it.

Edited September 14, 2022 by Marisawright

[Alan Collett]

1 hour ago, Rosm said:

A big thank you to both Ken and Alan. I’ve calculated the value at the relevant exchange rates and based on this there is no gain. As there is no gain on this basis would I still declare it on my Australian tax return. Once again, a big thank you.

While its possible to have a no gain/no loss disposal for a UK property sale when computed under Aus rules in my experience when running the numbers there's always a capital gain or loss due to the exchange rate movement:

> Cost base = GBP value translated at the rate of exchange when you acquired the property

> Sale proceeds = GBP proceeds (after deducting costs of sale), translated at the rate of exchange on the date of the disposal

Best regards.

 

[Ken]

2 hours ago, Rosm said:

A big thank you to both Ken and Alan. I’ve calculated the value at the relevant exchange rates and based on this there is no gain. As there is no gain on this basis would I still declare it on my Australian tax return. Once again, a big thank you.

Yes, you are going to want to put that capital loss on your tax return and carry it forward to when you do get a capital gain on something.

Incidentally although the Capital Gain/Loss is in FY2023 and so you don't need to do anything with it for a while, you do have rental income in FY2022 that needs to go on your FY2022 tax return.

[Rosm]

Thank you again. All so helpful.

[rbrooks]

As someone mentioned, yes, this is one of the more useful threads. Thank you.  I've got some questions too...

• My spouse and I are UK citizens who arrived here late last year with a visa that gives us perm residence status. My spouse hasn't been working here yet.
• We had already put our UK house up for sale before leaving. It was our only house and primary residence and was in both of our names. Since arriving in Australia we've been renting.
• Our house finally sold last month for a bit more than the asking price.
• For HMRC capital gains purposes I've done the non resident calculator and submitted the online form. As it was primary residence for many years, no capital gains taxes to pay in the UK.
• Half of the value of the house was in principle and the other half was a bank loan, i.e. ~50% LTV.
• GBPAUD on the day we landed in Australia was ~1.825 and ~1.708 when the house sold, i.e. Sterling weakened 6.4%.
• The loss in AUD from foreign exchange is larger than the gain from the house sell for more than the asking price, i.e. from an AUD perspective we're worse off than on the day we landed here.
• The house sale proceeds are still in GBP but we're thinking to move those into AUD soon.

Questions:

• Does the house sale and capital loss have to be reported on my Australia taxes? Or does it not qualify as a loss as it was primary residence? Or just 50% of it? Bear in mind I wouldn't mind showing some capital losses to deduct from my income.
• If it does show as a capital loss then:
  • Is the foreign exchange rate taken from the day of sale or on the day we physically sell the proceeds for AUD? 
  • is it on the full value of the house, or just the principle? What about the house loan?
  • do we split the loss between me and my spouse or can I show the full amount on mine?
• From an Australian foreign exchange loss/gain perspective what happens with the house sale proceeds when we/I exchange those to AUD?
  • Does the calculation look back to the original day we landed in Australia (loss) or from the day we sold the house (gain, so far)?
  • As I'm the one working and with a higher tax rate, should I FX into an Australian AUD account in my name only or in our joint account? Bear in mind if it's a loss then better to show all of it on mine only and then gift it back to my spouse shortly thereafter.

Basically I'm trying to make lemonade out of the lemons the weaker Sterling has cost us.  Ideally I would like to show on my Australian taxes (a) the full AUD capital loss on the sale of the house from arrival to sale date and (b) the full foreign exchange loss on the house proceeds and other GBP savings from arrival to now(or soon).

Thank you.

[Alan Collett]

Note that a capital loss is not deductible against your income.

If you factor the mortgage into the equation you have a forex gain - ie the amount of the AUDs you have to repay is less than the AUD equivalent of the loan amount on the day you became a tax resident of Australia.

If you think you need assistance making sense of all of this please feel able to ping an email to me.

Best regards.

[Ken]

4 hours ago, rbrooks said:

As someone mentioned, yes, this is one of the more useful threads. Thank you.  I've got some questions too...

• My spouse and I are UK citizens who arrived here late last year with a visa that gives us perm residence status. My spouse hasn't been working here yet.
• We had already put our UK house up for sale before leaving. It was our only house and primary residence and was in both of our names. Since arriving in Australia we've been renting.
• Our house finally sold last month for a bit more than the asking price.
• For HMRC capital gains purposes I've done the non resident calculator and submitted the online form. As it was primary residence for many years, no capital gains taxes to pay in the UK.
• Half of the value of the house was in principle and the other half was a bank loan, i.e. ~50% LTV.
• GBPAUD on the day we landed in Australia was ~1.825 and ~1.708 when the house sold, i.e. Sterling weakened 6.4%.
• The loss in AUD from foreign exchange is larger than the gain from the house sell for more than the asking price, i.e. from an AUD perspective we're worse off than on the day we landed here.
• The house sale proceeds are still in GBP but we're thinking to move those into AUD soon.

Questions:

• Does the house sale and capital loss have to be reported on my Australia taxes? Or does it not qualify as a loss as it was primary residence? Or just 50% of it? Bear in mind I wouldn't mind showing some capital losses to deduct from my income.
• If it does show as a capital loss then:
  • Is the foreign exchange rate taken from the day of sale or on the day we physically sell the proceeds for AUD? 
  • is it on the full value of the house, or just the principle? What about the house loan?
  • do we split the loss between me and my spouse or can I show the full amount on mine?
• From an Australian foreign exchange loss/gain perspective what happens with the house sale proceeds when we/I exchange those to AUD?
  • Does the calculation look back to the original day we landed in Australia (loss) or from the day we sold the house (gain, so far)?
  • As I'm the one working and with a higher tax rate, should I FX into an Australian AUD account in my name only or in our joint account? Bear in mind if it's a loss then better to show all of it on mine only and then gift it back to my spouse shortly thereafter.

Basically I'm trying to make lemonade out of the lemons the weaker Sterling has cost us.  Ideally I would like to show on my Australian taxes (a) the full AUD capital loss on the sale of the house from arrival to sale date and (b) the full foreign exchange loss on the house proceeds and other GBP savings from arrival to now(or soon).

Thank you.

A capital loss can only be used against capital gains in the year or carried forward and used against future capital gains.

As to your specific questions:

1) No it doesn't need to be on your Australian Tax Return. Since this is the house you lived in (and it's not more than 6 years since you moved out) you can claim it was your principal residence and so CGT free - however if it's not on your tax return there will be no capital loss to carry forward either.

But you don't have to claim it as your principal residence in which case a loss can still be claimed and carried forward (if not able to be offset against capital gains in the current year). The 50% discount doesn't get applied to losses - although as losses are taken off any gains before the 50% discount is applied to them it doesn't really make a difference.

2) The gain is on the value of the property on the day you moved to Australia (if that figure is available) to the day you sold the property less any selling expenses. As Alan has pointed out if using the FX rate at those two dates you also have to factor in the FX on the loan and this is further complicated by any capital repayments made in the period.

If you don't have a figure for the value of the property on the day you moved to Australia (and if you are going to try to claim a loss that should be a professional valuation) you can calculate the gain/loss across the whole period you owned the property (less both selling and buying expenses) and apportion across the periods you were in the UK and in Australia to come up with a theoretical value on the day you moved.

If the house was owned 50:50 between you and your spouse then the loss must be split 50:50 too. Alternative ownership splits are possible but you would need evidence to show that was how the house was owned.

3) There are no taxes on FX transfers (income is taxed not transfers between banks accounts even in different countries) or on gifts between spouses so it doesn't matter who's name (either or both) you do the FX transfers in.

[Alan Collett]

To pick up on point 3 in Ken's comment: a transfer of monies denominated in GBPs in the UK to AUDs in Australia can give rise to the realisation of a forex exchange gain or loss if the underlying monies are within the scope of Australia's forex gains and losses provisions.

There are exemptions from the forex gains and losses provisions, but this subject is generally not one for the faint hearted!

Best regards.