Capital Gains Tax for Australians selling UK property

[brlund007]

My wife is Australian and I became an Australian (from the UK)  in 1992.

in 2000 we bought a flat to rent out in London UK for 250,000 GBP and we're now selling it and want to figure out how much CGT we'll have to pay in Australia.

If we sell it for 750,000 GBP, the gain would seem to be 500,000 GBP,  however the UK seems to allow expats to use property value as at April 2015 instead of actual cost.

This would make a big difference if it's value in 2015 was, say 500,000 GBP because the gain would then be halved to 250, 000 GBP.

Can anyone tell us whether the ATO would allow a valuation based on this April 2015 rule?

Grateful for any advice

Brlund007

 

 

 

[DIG85]

I understand at the time it was bought the intention was to rent it out, but did you ever live in it and if so for how long?

No, the ATO would not accept the April 2015 value and the purchase price in 2000 would have to be used. The 50% CGT discount should be available.

[Marisawright]

The ATO will take the actual purchase price, not the 2015 value.  

I'd suggest getting a tax agent, someone who's knowledgeable about both UK and Australian tax regimes, because you'll have to calculate what tax is due in both  countries and also figure out how the two tax regimes interact as you shouldn't have to pay tax twice.   @Alan Collett is recommended.

[ramot]

3 hours ago, brlund007 said:

My wife is Australian and I became an Australian (from the UK)  in 1992.

in 2000 we bought a flat to rent out in London UK for 250,000 GBP and we're now selling it and want to figure out how much CGT we'll have to pay in Australia.

If we sell it for 750,000 GBP, the gain would seem to be 500,000 GBP,  however the UK seems to allow expats to use property value as at April 2015 instead of actual cost.

This would make a big difference if it's value in 2015 was, say 500,000 GBP because the gain would then be halved to 250, 000 GBP.

Can anyone tell us whether the ATO would allow a valuation based on this April 2015 rule?

Grateful for any advice

Brlund007

 

 

 

We are also selling a London flat. Please only take advice from someone like Alan Collett, who specialises in UK/Australian tax. 

 

[Ken]

3 hours ago, brlund007 said:

My wife is Australian and I became an Australian (from the UK)  in 1992.

in 2000 we bought a flat to rent out in London UK for 250,000 GBP and we're now selling it and want to figure out how much CGT we'll have to pay in Australia.

If we sell it for 750,000 GBP, the gain would seem to be 500,000 GBP,  however the UK seems to allow expats to use property value as at April 2015 instead of actual cost.

This would make a big difference if it's value in 2015 was, say 500,000 GBP because the gain would then be halved to 250, 000 GBP.

Can anyone tell us whether the ATO would allow a valuation based on this April 2015 rule?

Grateful for any advice

Brlund007

No, the April 2015 date is for UK CGT (which you have to pay even though you are in Australia because the property is in the UK and so is UK taxable property). Prior to 2015 residential property was free from UK CGT regardless of where you lived. The good news is that you can claim any tax paid in the UK as an Australian tax offset.

Australian CGT however has applied to UK residential property (owned by Australian residents and other than a property claimed as their main residence) since 1985 (when CGT was introduced), so you will have to pay for the gain since 2000 when you bought it. You will however be entitled to the 50% discount because you've owned it for more than 12 months. It doesn't sound like you ever lived there so you won't be entitled to a main residence discount for any part of your ownership. Don't forget that any costs of buying or selling (including solicitors and estate agents) or property improvements or other expenses (other than those you've already claimed against rental income) will reduce your gain. Don't forget also that it's only 50% each and (as I've already mentioned) your UK tax paid is a tax offset.

Edited January 30, 2022 by Ken

[ramot]

22 minutes ago, Ken said:

No, the April 2015 date is for UK CGT (which you have to pay even though you are in Australia because the property is in the UK and so is UK taxable property). Prior to 2015 residential property was free from UK CGT regardless of where you lived. The good news is that you can claim any tax paid in the UK as an Australian tax offset.

Australian CGT however has applied to UK residential property (owned by Australian residents and other than a property claimed as their main residence) since 1985 (when CGT was introduced), so you will have to pay for the gain since 2000 when you bought it. You will however be entitled to the 50% discount because you've owned it for more than 12 months. It doesn't sound like you ever lived there so you won't be entitled to a main residence discount for any part of your ownership. Don't forget that any costs of buying or selling (including solicitors and estate agents) or property improvements or other expenses (other than those you've already claimed against rental income) will reduce your gain. Don't forget also that it's only 50% each and (as I've already mentioned) your UK tax paid is a tax offset.

Ken, does your good advice apply  from when you gained PR? In our case we have only had PR for 3 years, and only paid Australian tax recently, and CGT from 2015 shared between us. Thanks 

Edited January 30, 2022 by ramot

[Ken]

6 minutes ago, ramot said:

Ken, does your good advice apply  from when you gained PR? In our case we have only had PR for 3 years, and only paid Australian tax recently, and CGT from 2015 shared between us. Thanks 

Hi ramot. that advice was written based on the OP having become Australian back in 1992 so I didn't bother to mention the temporary residency rules, but yes that makes a big difference. As a temporary resident you are exempt from Australian tax on your foreign income and assets so you would only pay Australian CGT on the gain made after you gained PR (assuming you were already an Australian resident at the time).

[ramot]

3 hours ago, Ken said:

Hi ramot. that advice was written based on the OP having become Australian back in 1992 so I didn't bother to mention the temporary residency rules, but yes that makes a big difference. As a temporary resident you are exempt from Australian tax on your foreign income and assets so you would only pay Australian CGT on the gain made after you gained PR (assuming you were already an Australian resident at the time).

That was always our understanding, I appreciate you were responding to the OP, but was slightly concerned that we were wrong, when there were no exceptions mentioned.

[Andrew from Vista Financial]

19 hours ago, brlund007 said:

My wife is Australian and I became an Australian (from the UK)  in 1992.

in 2000 we bought a flat to rent out in London UK for 250,000 GBP and we're now selling it and want to figure out how much CGT we'll have to pay in Australia.

If we sell it for 750,000 GBP, the gain would seem to be 500,000 GBP,  however the UK seems to allow expats to use property value as at April 2015 instead of actual cost.

This would make a big difference if it's value in 2015 was, say 500,000 GBP because the gain would then be halved to 250, 000 GBP.

Can anyone tell us whether the ATO would allow a valuation based on this April 2015 rule?

Grateful for any advice

Brlund007

 

 

 

Hello

Since this is not a Pension/Financial Planning matter and relates solely to tax I will ask the mods to move this to the moeny and finance section.

 

Thanks.

[DIG85]

15 hours ago, Ken said:

Hi ramot. that advice was written based on the OP having become Australian back in 1992 so I didn't bother to mention the temporary residency rules, but yes that makes a big difference. As a temporary resident you are exempt from Australian tax on your foreign income and assets so you would only pay Australian CGT on the gain made after you gained PR (assuming you were already an Australian resident at the time).

That’s not quite the whole story though. 

A holder of a temporary visa is not regarded as a temporary resident for Australian tax purposes where their spouse is an Australian resident within the meaning of the Social Security Act 1991.

A person is an Australian resident within the meaning of the SSA if they reside in Australia and are either an Australian permanent resident or an Australian citizen.

The OP’s wife would be regarded as an Australian resident within the meaning of the SSA and therefore the OP would be regarded as Australian tax resident (and therefore subject to Australian CGT on UK assets) notwithstanding the fact that he only held a temporary visa. 

However, as you imply, the point is moot because the OP is an Australian citizen and lives in Australia.

 

 

Edited January 30, 2022 by DIG85

[Alan Collett]

In addition to the above comments ... note that in the Aus CGT calculation the GBP cost is translated into AUDs using the exchange rate of the time.

I recall that £1 = close to A$3 back then.

So your cost base in the Australian CGT calculation should be uplifted relative to where we are today with the GBP-AUD exchange rate because of the strong £ at that time.

If you've got a mortgage watch the forex position too - though the forex rules came in back in (I recall) 2003, so this point might be mute if a present borrowing was taken out when you bought the property.

And ... if you're claiming the 50% CGT discount you can only claim 50% of any UK CGT as a foreign income tax offset in Australia.

Lots to consider!

Feel able to contact me at bdhTax if you'd like the numbers crunched.

Best regards.

[talktosi]

If the UK property is rented( after moving to Australia) for a period ( min. 6 months) before being sold are you liable for full CGT when it is sold ? I did hear that there is an interim period or some sort of calculation to reduce your CGT based on the number of years you lived in the property before moving overseas. Lived in property since 2007 and current estimates suggest we wouldnt be liable for CGT if we sold today, especially if liability split with my wife. Thanks 

[Ken]

1 hour ago, talktosi said:

If the UK property is rented( after moving to Australia) for a period ( min. 6 months) before being sold are you liable for full CGT when it is sold ? I did hear that there is an interim period or some sort of calculation to reduce your CGT based on the number of years you lived in the property before moving overseas. Lived in property since 2007 and current estimates suggest we wouldnt be liable for CGT if we sold today, especially if liability split with my wife. Thanks 

Are you asking about UK CGT or Australian CGT?

For UK CGT you would be exempt for any period when you lived there and it was your only or main residence and for the last 9 months of ownership. There are other possible exemptions too so you should go over all of them in your particular circumstances with an accountant.

For Australian CGT you can claim the main residence exemption for up to 6 years after you ceased to live there - but can only claim for one residence at a time (other than a possible 6 month overlap for buying and selling). This is however very useful if you are renting in Australia and not buying until you've sold your UK property. Again there are a lot of other possible exemptions (some of which have already been mentioned in previous posts by me and others) so you should go over all of them in your particular circumstances and visa status with an accountant.

[brlund007]

I'd like thank people who replied to my query about CGT payable by Australians when selling UK property.

Quick answers to questions are --

we didn't live in the UK property at all

we bought with a mortgage of about 190,000 GBP (now about 220,000)

we recognize having to pay CGT in Australia (not UK)

we're seeking advice from a recommended tax expert

Best regards

brlund

 

[Alan Collett]

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

Not sure why you think no CGT to consider in the UK?

Best regards.

[MARYROSE02]

On 30/01/2022 at 13:48, brlund007 said:

My wife is Australian and I became an Australian (from the UK)  in 1992.

in 2000 we bought a flat to rent out in London UK for 250,000 GBP and we're now selling it and want to figure out how much CGT we'll have to pay in Australia.

If we sell it for 750,000 GBP, the gain would seem to be 500,000 GBP,  however the UK seems to allow expats to use property value as at April 2015 instead of actual cost.

This would make a big difference if it's value in 2015 was, say 500,000 GBP because the gain would then be halved to 250, 000 GBP.

Can anyone tell us whether the ATO would allow a valuation based on this April 2015 rule?

Grateful for any advice

Brlund007

 

 

 

My understanding is that you look at the price of a comparable property sold in 2015, not 2000 when you bought it. I sold my home in the UK in January this year and I initially used the  purchase price from 2007 when I bought it. Then I realized that for overseas residents you use that date in 2015. I found a home in my street which sold in 2015 and I've used that value to calculate the CGT.

However I've not paid the CGT to HMRC because I cannot figure out how to create a CGT account? I've got a self assessment account but that is no good. You can't create a CGT account from your self assessment account or use your signing on details to create the CGT acccount.I wi

HMRC ask for different forms of ID but I've been thwarted when I try using any two of them. I don't have a UK passport.  If I try to use the details from my last self assessment they ask for my UK address but I don't have a UK address. I use my Australian address which is where HMRC send me any correspondence. 

Signing into HMRC using the Verify Gov method via the Post Office is also no good because I end up at the same "locked gate."

Hopefully, HMRC will send me a form through the post.

Of course, I may just be thick and the means to create that account is staring at me in the face.

I will check with my Aussie TA regarding CGT paid in Australia but I'm pretty sure the bulk of it will be paid in the UK.

 

[Alan Collett]

On 19/03/2022 at 02:31, MARYROSE02 said:

My understanding is that you look at the price of a comparable property sold in 2015, not 2000 when you bought it. I sold my home in the UK in January this year and I initially used the  purchase price from 2007 when I bought it. Then I realized that for overseas residents you use that date in 2015. I found a home in my street which sold in 2015 and I've used that value to calculate the CGT.

However I've not paid the CGT to HMRC because I cannot figure out how to create a CGT account? I've got a self assessment account but that is no good. You can't create a CGT account from your self assessment account or use your signing on details to create the CGT acccount.I wi

HMRC ask for different forms of ID but I've been thwarted when I try using any two of them. I don't have a UK passport.  If I try to use the details from my last self assessment they ask for my UK address but I don't have a UK address. I use my Australian address which is where HMRC send me any correspondence. 

Signing into HMRC using the Verify Gov method via the Post Office is also no good because I end up at the same "locked gate."

Hopefully, HMRC will send me a form through the post.

Of course, I may just be thick and the means to create that account is staring at me in the face.

I will check with my Aussie TA regarding CGT paid in Australia but I'm pretty sure the bulk of it will be paid in the UK.

 

If you're stuck and need help with your UK and/or Australian tax feel able to send a private message to me, or to complete the enquiry form at www.bdhtax.com

Best regards.

[Alan Collett]

PS - re the UK tax that is creditable against the tax payable in Australia on the capital gain:

https://www.ato.gov.au/law/view/document?DOCID=AID/AID2010175/00001

Consequently, where a resident of Australia pays foreign income tax on the whole of a foreign capital gain but only 50% of the gain is included in the assessable income of the taxpayer in Australia because the taxpayer is entitled to the CGT discount, only 50% of the foreign income tax counts towards the foreign income tax offset under subsection 770-10(1) of the ITAA 1997.

[brlund007]

Maryrose:

Thanks for your helpful story and I sympathise with the difficulties you've faced in dealing with bureaucracies.

I'd be very interested to know how you manage with creating a CGT account. When I had problems with the ATO I phoned and was surprised by the helpfulness of the person I (eventually) contacted. Waits can be long enough to read a novel (or even write one).

I've written to Alan Collett asking for professional help by the way.

Good luck with your efforts.

[imarcq]

Hi there,

I moved back to UK in 2015 to care for my elderly Dad who sadly passed in 2020. I inherited his house, sold it in April 2022, returning to live in Sydney this May 2022. I lived in his house with him as his carer for the whole time.

When I transfer the money to Australia, to buy a home here, will I need to declare it or pay CGT? I know that in UK no GCT was payable as it had been my main residence for seven years. Is there anything I should be aware of when transferring the cash to Australia, apart from waiting until the exchange rate improves!

Thanks,

Mark.

[DIG85]

43 minutes ago, imarcq said:

Hi there,

I moved back to UK in 2015 to care for my elderly Dad who sadly passed in 2020. I inherited his house, sold it in April 2022, returning to live in Sydney this May 2022. I lived in his house with him as his carer for the whole time.

When I transfer the money to Australia, to buy a home here, will I need to declare it or pay CGT? I know that in UK no GCT was payable as it had been my main residence for seven years. Is there anything I should be aware of when transferring the cash to Australia, apart from waiting until the exchange rate improves!

 

Edited May 19, 2022 by DIG85

[DIG85]

The UK main residence exemption is only available in respect of the period you actually owned the property. This was not until 2020 or even 2021, depending on when probate was granted. However, that does mean you will only be charged to UK CGT on the uplift in value over the one year period you owned it. You should be able to reduce the amount of any capital gain by the annual exempt amount of GBP 12,300.

The taxing point for any gain - both in the UK and Aus - is generally when contracts are exchanged (or, in the case of conditional contracts, when the contract goes unconditional), not when money is transferred from one country to another.

There should be no Aus CGT because you were not tax resident in Aus when the property was sold.

The transfer of the money does not need to be declared in either country. 

Edited May 19, 2022 by DIG85

[imarcq]

2 hours ago, DIG85 said:

The UK main residence exemption is only available in respect of the period you actually owned the property. This was not until 2020 or even 2021, depending on when probate was granted. However, that does mean you will only be charged to UK CGT on the uplift in value over the one year period you owned it. You should be able to reduce the amount of any capital gain by the annual exempt amount of GBP 12,300.

The taxing point for any gain - both in the UK and Aus - is generally when contracts are exchanged (or, in the case of conditional contracts, when the contract goes unconditional), not when money is transferred from one country to another.

There should be no Aus CGT because you were not tax resident in Aus when the property was sold.

The transfer of the money does not need to be declared in either country. 

Thanks for this. Very helpful. I didn't get probate until the end of 2020, I registered the deeds in my name in June 2021 but didn't exchange contracts until March 2022, and completed on 7th April. I was advised by the agent that because I had to lived in the house for several years no CGT was payable in UK. Are you saying this is incorrect? 

[MARYROSE02]

14 minutes ago, imarcq said:

Thanks for this. Very helpful. I didn't get probate until the end of 2020, I registered the deeds in my name in June 2021 but didn't exchange contracts until March 2022, and completed on 7th April. I was advised by the agent that because I had to lived in the house for several years no CGT was payable in UK. Are you saying this is incorrect? 

I think you may still need to open a CGT account on line via the HMRC website and report the sale regardless of whether you are liable for UK tax or not. You may have to file a UK tax return too.

I have a online account for self assessment with HMRC because I have UK income from pensions and until recently rent on my UK home. Since I've sold my UK home I've opened a CGT account but I've not completed it yet.

You can phone HMRC on 001144 135 535 9022 for CGT enquiries.

Possibly 001144 161 931 9070 for self assessment enquiries.

I have a copy of my Govt Gateway letter from 2011 with various phone numbers and other information scribbled on it 

Google  "HMRC capital gains tax account" and "self assessment" and you'll probably find your way there.

I've only just created my own CGT account. You need various forms of ID to do it, ditto the Self Assessment account.

I have an idea of how much CGT I will pay based on the difference between 2015 value of my house or similar and today. I need to do the self assessment for 21 / 22 too then probably have some tax to pay the ATO too when I do that return. I've not lived in the UK since 2008.

[DIG85]

2 hours ago, imarcq said:

I was advised by the agent that because I had to lived in the house for several years no CGT was payable in UK. Are you saying this is incorrect? 

If the property was still your main home between the grant of probate at the end of 2020 and the exchange of contracts in March 2022 then principal private residence relief should eliminate any gain arising in that period. I didn't make that clear in my OP. The only potential issue is that if it was always your intention to sell the property once probate had been granted, HMRC could argue that the property was held as trading stock and any profit realised on its its sale should be regarded as trading income subject to income tax (as opposed to being a capital asset subject to CGT). This is a very long bow and it would have to be a pretty grumpy inspector who took the point.

Assuming it was a CGT asset, the fact you lived in the property between 2015 and 2020 is irrelevant because you did not own the property during that period.

Edited May 19, 2022 by DIG85