daisycutter

Hi,we own a couple of properties that we have left in the UK,one owned for 25 years and another for 12 years,they are for our 2 kids and owned them on top of our main residence before we left the UK in 2002 .. we are now considering a move back to the UK .. i had thought that if we sold the proerties whilst we were abroad and non resident then we would attract no CGT ... but unsure about this,however we are concerned that once we have returned and are resident in the UK we would be liable to CGT in the ordinary way .. just wondering if anyone has experience of this .. cheers

punktlich2

That is correct. Nonresidents of the UK do not pay CGT on UK property; this is something of an anomaly as compared with other countries of the world. And the last Budget closed a further loophole (still used in the USA) that if the property is owned by a foreign company there is no IHT either.

HOWEVER: there is an allowance (pro rata on the gain) for those years spent abroad working, and also for 3 extra years. We took advantage of this when we sold a UK house after our return and were only charged CGT on the percentage of years living in the UK and renting it over total years we owned the property. An accountant can figure this out for you on the back of an envelope.

If you sell the house while abroad there is no CGT. Except that you have to live abroad 5 years (increased from 3) or the tax is clawed back. This relates to taxpayers who sell things (typically a business) and retire abroad and return in less than 5 years. But it could apply to real property too.

The above is a bit oversimplified, but the essence is correct. If there is a lot of money involved you should definitely get pre-migration advice. Especially since you have more than one residence in the UK. The interplay with main residence exemption is key.

Pistolpete2

I believe this is not strictly correct! In the last budget, the Chancellor said that he will be looking at consultation regarding the levying of CGT on offshore companies owning UK residential property. Offshore companies that already own UK residential property worth more than £2m will be subject to CGT from April 2013.

We digress, but there is no effect on IHT for non-doms who own shares in an offshore company which owns UK real estate, so far. This is an important tax consideration for those who own UK real estate and live overseas, likely more so pound-wise than CGT these days.

punktlich2

One can't predict the future of taxation. This is why it's so important to have a professional advisor, which was my main point.

The issue of offshore companies owning UK property raises a special point: does the ownership of property itself constitute "doing business" in a country? Many countries say that it does, sometimes depending on what is done with the property. What tax experts do is to arrange layers of entities and trusts. To my mind that's tax evasion, but if it's legal then it's just avoidance.

In the long run, "non-dom" status will be eroded to the point of irrelevance. Habitual residence or ordinary residence will probably take over. After all, HMRC is already unable to collect IHT on emigrants whether or not they have indeed abandoned UK domicile, if there are no UK assets on which to levy.

There are interesting principles at stake. Theophile v. Solicitor-General, [1950] A.C. 186 is one of my favourite cases, essentially stating that one has not ceased to do business in the England (and hence may be made bankrupt, including for taxes) if all debts have not been paid. And see Bullen v. Her Majesty's Government of the United Kingdom, 553 So.2d 1344 (Fla. App. 4th Dist. 1989), rejecting the Lord Mansfield Rule (one State will not enforce the tax claims of another) when the tax debtor (actually VAT-fraud criminal) had been made bankrupt in England.

But this isn't the forum for all that. Suffice to say, assets are a moving target for taxation. It doesn't take much for a State to enact a law piercing the corporate veil on real estate ownership. Of course once a particular piece of real estate gets to a value of £50 million it's worthwhile to magnify the number of foreign shareholders to the point where they can scarcely be brought into the scope of UK taxation.

Already the recommended layering for IHT purposes in other countries is: local company owns the property. Foreign company and/or trusts are layered to own the shares. Usually works, but I am not your lawyer, etc. etc.