UK Property Sale - Mortgage Redemption Forex Gain/Loss in CGT Calculation

[tloring]

In March 2015, we engaged expat tax specialists to help us out with the CGT calculation on a UK house sale, that we needed to provide to our tax accountant for our ATO Tax Returns that year. We had had the property valued at the point of emigrating (2011). The sales proceeds minus the valuation at point of emigrating minus the partial main residency discount minus the 50% discount for 12mths+ ownership, reduced the capital gains liability significantly. However, the big kicker was that we could also offset the forex implication of the mortgage from the point of emigrating to the point of sale, i.e. even though the GBP mortgage amount was the same from point of emigrating to point of sale (it was interest only mortgage), due to exchange rate change the cost of the mortgage redemption in AUD had increased significantly; and we were able to offset that AUD forex “loss” against the CG total. The expat tax specialist said that the same calculation spreadsheet could be used if and when we sold our other UK property.

We are now selling our other property in the UK. The ATO CG liability for the sale itself will be worked out in the same way, i.e. sales proceeds minus valuation at point of emigrating minus partial main residency discount minus 50% discount for 12mths+ ownership. However, for this property we changed from an interest-only to a repayment mortgage in 2015. This means if I use the same calculation for the forex gain/loss on mortgage redemption value between point of emigration to point of sale, it will actual result in an apparent AUD forex “gain” on the redemption, i.e. our mortgage redemption value is less now that it would have been a point of emigration because it has been a repayment mortgage, so of course the redemption is less.

My question is – because we changed the mortgage from interest-only to repayment in 2015 (4 years after we emigrated), I don’t understand how to include a forex gain/loss calculation on mortgage redemption in the overall CGT calculation.

I hope this question makes sense, and if so, does anyone have any guidance? Thank you.

[Alan Collett]

21 hours ago, tloring said:

In March 2015, we engaged expat tax specialists to help us out with the CGT calculation on a UK house sale, that we needed to provide to our tax accountant for our ATO Tax Returns that year. We had had the property valued at the point of emigrating (2011). The sales proceeds minus the valuation at point of emigrating minus the partial main residency discount minus the 50% discount for 12mths+ ownership, reduced the capital gains liability significantly. However, the big kicker was that we could also offset the forex implication of the mortgage from the point of emigrating to the point of sale, i.e. even though the GBP mortgage amount was the same from point of emigrating to point of sale (it was interest only mortgage), due to exchange rate change the cost of the mortgage redemption in AUD had increased significantly; and we were able to offset that AUD forex “loss” against the CG total. The expat tax specialist said that the same calculation spreadsheet could be used if and when we sold our other UK property.

We are now selling our other property in the UK. The ATO CG liability for the sale itself will be worked out in the same way, i.e. sales proceeds minus valuation at point of emigrating minus partial main residency discount minus 50% discount for 12mths+ ownership. However, for this property we changed from an interest-only to a repayment mortgage in 2015. This means if I use the same calculation for the forex gain/loss on mortgage redemption value between point of emigration to point of sale, it will actual result in an apparent AUD forex “gain” on the redemption, i.e. our mortgage redemption value is less now that it would have been a point of emigration because it has been a repayment mortgage, so of course the redemption is less.

My question is – because we changed the mortgage from interest-only to repayment in 2015 (4 years after we emigrated), I don’t understand how to include a forex gain/loss calculation on mortgage redemption in the overall CGT calculation.

I hope this question makes sense, and if so, does anyone have any guidance? Thank you.

This is a very technical area of tax; its unlikely m/any on here will have the answer.

Maybe approach a form of expat tax specialists again?

Best regards.