Please help with CGT

[Skylar]

Hi

We are hoping someone can give us some insight on the best things to do to reduce the amount of the CGT in UK and Australia if we decide to sell our property/ies in the UK.  We are hoping to buy our own place here in NSW but unsure how much CGT will be.

-          Bought our first house which was derelict at the time mortgage free in Nov 1998 in England, lived there from 3 March till 18 September 99 while renovating it, rented out since 19 September 1999.

-          Bought 2^nd house (main residence) in England on 18 April 2000 and lived there till June 2007 (renovating it from April 00 till July 2001 while living there) it has been rented out since we moved to Australia, paid off the mortgage in Sept 2010.

-          Moved to NSW in June 2007 with a skilled visa.  Became AU citizens on 26 Jan 2010

-          Our UK main residence has been rented out since July 2007

-          both UK properties in joint names

-          have been filing tax returns on both rental income in both UK and Australia.

-          we have been renting since we arrived in Australia in June 2007 and do not own a property in AU

My questions are:

1)      How best to reduce our CGT, I believe we cannot claim a 100% exemption on our UK main residence as we have been in AU and not living in our UK property?   Possibility to have them gifted to children?

2)      We are considering moving back and working in the UK for a year or two.  If we move back to UK to our main residence for a period of time, would we have 100% CGT exemption again, and if so how long would we need to live in the property before selling it?

3)      If we remain in Australia we would like to buy our own home here rather than continue renting. How do we workout the percentage of CGT in Australia and/or UK we’ll have to pay if we sell 1 or both UK properties?

Thank you for any help in advance.

 

[Skylar]

No sure how to edit my last post, new to here.   I do understand we'll need to seek professional advice but just wanted to get some idea at this stage to ease my mind, thank you!

[Philip]

For UK CGT, you work out the proportion of time it was your main residence and that portion is exempt (Private Residence Relief). For a property to be regarded as your main residence, it must actually be your home and you can only have one main residence at one time. If you have more than one residence which is actually your home, you can write to HMRC to choose one as your main residence (thus tax-free) but this is only retrospective for 2 years.

Also the last 9 months of ownership is exempt regardless, and the whole period of ownership is counted regardless of which country you lived in.

So roughly speaking with some assumptions - if you owned property 1 for 28 years and lived there for 1 year 3 months, 2/28ths of the gain is tax-free and CGT is due on 26/28ths of the gain. If you owned property 2 for 26 years and lived there for 7 years 3 months (from 2000) plus 2 years (from 2025), 10/26ths of the gain is tax-free and 16/26ths is taxable.

If you give a property away or sell it for less than its market value to a related party such as children, it's treated as selling it for market value, so you should get a market valuation if you want to do this.

 

For Australia, again you can only have one main residence at one time (unless moving house when there can be a 6 month overlap) and that period is exempt from tax. Different to the UK is that every time after moving out of a property, you can continue treating it as your main residence and thus tax-free for up to 6 years, which would suit someone who is renting (or living in a property that you expect to appreciate in value less).

But as a foreign property you would only be taxed on the gain during the period you are an Australian resident. This period may have started on the day you arrived, or maybe when you were granted a permanent visa. If you return to the UK to work and stop being an Australian tax resident, you are treated as disposing of the properties on the day you depart, and CGT is due.

If you don't want to pay tax on the unrealised gain at that point, you can choose to wait until you eventually sell, but then the ownership period when you are a non-resident is also taxed, and you would pay the non-resident tax rate (though you might be paying a high rate anyway if you have lots of income in the year you depart).

However, I believe the UK double tax treaty lets you avoid Australian CGT in this case provided that UK CGT is paid on the same asset covering the same time period. So if you are moving back to the UK temporarily it is potentially wiser to sell both while you are there.

[Skylar]

On 21/03/2024 at 22:02, Philip said:

For UK CGT, you work out the proportion of time it was your main residence and that portion is exempt (Private Residence Relief). For a property to be regarded as your main residence, it must actually be your home and you can only have one main residence at one time. If you have more than one residence which is actually your home, you can write to HMRC to choose one as your main residence (thus tax-free) but this is only retrospective for 2 years.

Also the last 9 months of ownership is exempt regardless, and the whole period of ownership is counted regardless of which country you lived in.

So roughly speaking with some assumptions - if you owned property 1 for 28 years and lived there for 1 year 3 months, 2/28ths of the gain is tax-free and CGT is due on 26/28ths of the gain. If you owned property 2 for 26 years and lived there for 7 years 3 months (from 2000) plus 2 years (from 2025), 10/26ths of the gain is tax-free and 16/26ths is taxable.

If you give a property away or sell it for less than its market value to a related party such as children, it's treated as selling it for market value, so you should get a market valuation if you want to do this.

 

For Australia, again you can only have one main residence at one time (unless moving house when there can be a 6 month overlap) and that period is exempt from tax. Different to the UK is that every time after moving out of a property, you can continue treating it as your main residence and thus tax-free for up to 6 years, which would suit someone who is renting (or living in a property that you expect to appreciate in value less).

But as a foreign property you would only be taxed on the gain during the period you are an Australian resident. This period may have started on the day you arrived, or maybe when you were granted a permanent visa. If you return to the UK to work and stop being an Australian tax resident, you are treated as disposing of the properties on the day you depart, and CGT is due.

If you don't want to pay tax on the unrealised gain at that point, you can choose to wait until you eventually sell, but then the ownership period when you are a non-resident is also taxed, and you would pay the non-resident tax rate (though you might be paying a high rate anyway if you have lots of income in the year you depart).

However, I believe the UK double tax treaty lets you avoid Australian CGT in this case provided that UK CGT is paid on the same asset covering the same time period. So if you are moving back to the UK temporarily it is potentially wiser to sell both while you are there.

Thank you very much for that Philip.  A lot of info to absorb.  We could possibly move to Republic of Ireland so will look into that as well.  Thanks again!