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Capital Gains dilemma - for Alan Collett or experts

Capital Gains dilemma - for Alan Collett or experts

Old May 30th 2005, 8:38 am
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Default Capital Gains dilemma - for Alan Collett or experts

I think this is for Alan or other experts.

I become Australian tax resident in October and sell UK investments bought some years ago in January. Alan Collett says I am liable for UK capital gains on the proceeds unless I sell in the next UK tax year after leaving the UK and don’t return to the UK for 5 years. The investments are revalued for Australian tax purposes on date of residency and an Australian capital gain event and liability occurs on the sale.

My dilemma is to know what capital gains tax(es) to pay - to the UK, Australia or both?

Perhaps best illustrated by an example:
Buy UK funds at £50k 5 years ago
In October become Oz resident and value is £100k
Sell in January when value is £102k

1. UK liability = 102-50-UK capital gains allowance less tapers.
2. Australian liability = 102-100 less 50% as held over 1 year.

Do I need to pay both 1 and 2? Or am I missing something in my interpretation? All help appreciated!
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Old May 30th 2005, 11:06 pm
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Default Re: Capital Gains dilemma - for Alan Collett or experts

With a gain of that amount I think you should be considering paying for some professional advice ... :-))

Best regards.


Originally Posted by jumbo
I think this is for Alan or other experts.

I become Australian tax resident in October and sell UK investments bought some years ago in January. Alan Collett says I am liable for UK capital gains on the proceeds unless I sell in the next UK tax year after leaving the UK and don’t return to the UK for 5 years. The investments are revalued for Australian tax purposes on date of residency and an Australian capital gain event and liability occurs on the sale.

My dilemma is to know what capital gains tax(es) to pay - to the UK, Australia or both?

Perhaps best illustrated by an example:
Buy UK funds at £50k 5 years ago
In October become Oz resident and value is £100k
Sell in January when value is £102k

1. UK liability = 102-50-UK capital gains allowance less tapers.
2. Australian liability = 102-100 less 50% as held over 1 year.

Do I need to pay both 1 and 2? Or am I missing something in my interpretation? All help appreciated!
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Old May 31st 2005, 7:39 am
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Default Re: Capital Gains dilemma - for Alan Collett or experts

Originally Posted by Alan Collett
With a gain of that amount I think you should be considering paying for some professional advice ... :-))

Best regards.
The example was large (I should be so lucky) only to make an easy illustration. But I thought you would have known the answer.
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Old May 31st 2005, 8:08 am
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Default Re: Capital Gains dilemma - for Alan Collett or experts

Originally Posted by jumbo
The example was large (I should be so lucky) only to make an easy illustration. But I thought you would have known the answer.
Alan will prob know the answer but what he is getting at I think is that he runs Collett & Co, financial advisors for Australia too.........
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Old May 31st 2005, 8:31 am
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Default Re: Capital Gains dilemma - for Alan Collett or experts

Originally Posted by jumbo
I think this is for Alan or other experts.

I become Australian tax resident in October and sell UK investments bought some years ago in January. Alan Collett says I am liable for UK capital gains on the proceeds unless I sell in the next UK tax year after leaving the UK and don’t return to the UK for 5 years. The investments are revalued for Australian tax purposes on date of residency and an Australian capital gain event and liability occurs on the sale.

My dilemma is to know what capital gains tax(es) to pay - to the UK, Australia or both?

Perhaps best illustrated by an example:
Buy UK funds at £50k 5 years ago
In October become Oz resident and value is £100k
Sell in January when value is £102k

1. UK liability = 102-50-UK capital gains allowance less tapers.
2. Australian liability = 102-100 less 50% as held over 1 year.

Do I need to pay both 1 and 2? Or am I missing something in my interpretation? All help appreciated!
I think Jumbo has raised an interesting point irrespective of the amounts involved. It is the general principal which should be addressed.

But you shouldn’t need to pay twice because of the double taxation agreement between Australia and the UK.

I would be surprised if Alan doesn’t know but you’ve set his cash registers going.
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Old May 31st 2005, 8:33 am
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Default Re: Capital Gains dilemma - for Alan Collett or experts

Not sure about the UK tax sit but the 50% Oz tax allowance is if you hold it for more than 12 months in Oz. So if you became resident in Oct and sold in Jan I believe the Oz taxman will not allow you a 50% allowance as far as they are concerned you've only held them for 4 months.

What happens before you became tax resident in Oz is irrevelant. My opinion no expert.
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Old May 31st 2005, 8:59 am
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Default Re: Capital Gains dilemma - for Alan Collett or experts

Originally Posted by Kiwipaul
Not sure about the UK tax sit but the 50% Oz tax allowance is if you hold it for more than 12 months in Oz. So if you became resident in Oct and sold in Jan I believe the Oz taxman will not allow you a 50% allowance as far as they are concerned you've only held them for 4 months.

What happens before you became tax resident in Oz is irrevelant. My opinion no expert.
So in my example you think there would just be Oz capital gains on £2k?
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Old May 31st 2005, 9:25 am
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Default Re: Capital Gains dilemma - for Alan Collett or experts

Originally Posted by jumbo
So in my example you think there would just be Oz capital gains on £2k?
Yes this is the only Oz tax. I think you can forget the UK side.
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Old May 31st 2005, 9:34 am
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Default Re: Capital Gains dilemma - for Alan Collett or experts

Originally Posted by jumbo
So in my example you think there would just be Oz capital gains on £2k?
I agree, but you need to calculate in $s using the exchange rates for the day you became tax resident and the day you sold. You never know you may have made a loss.

Don't know about the UK component, but Oz is not interested in the value before the day you became tax resident.

Regards
Alistair
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Old May 31st 2005, 9:40 am
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Default Re: Capital Gains dilemma - for Alan Collett or experts

Hi Jumbo,

It's not good news according to this site (assuming you arrived in October).

http://www.ietaxguard.co.uk/index.as...02_mar08.asp&1

Regards
Alistair
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Old May 31st 2005, 1:20 pm
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Default Re: Capital Gains dilemma - for Alan Collett or experts

Originally Posted by kirsty&al
Hi Jumbo,

It's not good news according to this site (assuming you arrived in October).

http://www.ietaxguard.co.uk/index.as...02_mar08.asp&1

Regards
Alistair
Thanks for the reference but I'm still left with whether I would be liable for two capital gains taxes on the same disposal. I guess I could at least avoid the Oz bill by pleading the double taxation line?
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Old May 31st 2005, 1:26 pm
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Default Re: Capital Gains dilemma - for Alan Collett or experts

Originally Posted by tweed
Thanks for the reference but I'm still left with whether I would be liable for two capital gains taxes on the same disposal. I guess I could at least avoid the Oz bill by pleading the double taxation line?
You shouldn't pay twice. The double taxation agreement means that you effectively pay the higher of the two systems (that doesn't mean that all the tax money goes to the system with the higher tax - the tax money could end up being split).

Regards
Alistair
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Old Jun 1st 2005, 9:24 am
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Default Re: Capital Gains dilemma - for Alan Collett or experts

Originally Posted by kirsty&al
You shouldn't pay twice. The double taxation agreement means that you effectively pay the higher of the two systems (that doesn't mean that all the tax money goes to the system with the higher tax - the tax money could end up being split).

Regards
Alistair
So in the example there could be UK cap gains on 100k-50k and Oz cap gains on 102k-100k. That seems the logical split?

Regards
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Old Jun 1st 2005, 10:07 am
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Default Re: Capital Gains dilemma - for Alan Collett or experts

Have a look at this

http://www.hmrc.gov.uk/cnr/faqs_capgains.htm

If you sell any time after you leave the UK and don't return for 5 years then I don't think you pay UK cap gains tax. Aus tax is calculated from date of arrival until sale.

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Old Jun 1st 2005, 12:57 pm
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Default Re: Capital Gains dilemma - for Alan Collett or experts

Originally Posted by lesleys
Have a look at this

http://www.hmrc.gov.uk/cnr/faqs_capgains.htm

If you sell any time after you leave the UK and don't return for 5 years then I don't think you pay UK cap gains tax. Aus tax is calculated from date of arrival until sale.

Lesley
Hello,

I think Q9 is supporting the view given in the Irish link http://www.ietaxguard.co.uk/index.a...n02_mar08.asp&1 which indicates that you are liable if you realise the gain in the tax year that you leave. It is interesting to note in Q4 "If you are liable, any gain or loss on your disposals are treated as accruing in the tax year of your return to the UK", which sounds like you don't pay anything if you don't return. The five years thing is not clear as it only says that you're liable if you come back within 5 years, but does not say you're not liable if you don't (subtle difference I know).

Personally, I would send them a letter and ask them to confirm that you would not be liable after 5 years. From past experience, I have found that they are not well versed in the finer points of tax law and would probably send you a letter confirming that you would not be liable. If they do then you should keep this as a "Get Out of Jail Free Card", and not pay anything if you return after 5 years.

Originally Posted by jumbo
So in the example there could be UK cap gains on 100k-50k and Oz cap gains on 102k-100k. That seems the logical split?

Regards
Based on Q4 given in lesleys' link you would have to calculate Oz tax first. Therefore, you would calculate the Oz CGT on 2k and if you went back to the UK you would calculate the UK CGT on 52k (102k-50k) and subtract the Oz CGT already paid (which may leave you slightly better off than the 50k/2k split).

Regards
Alistair

Last edited by kirsty&al; Jun 1st 2005 at 1:00 pm.
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