Seabird

This may be a bit complex, but if anyone has any experience of this it would be greatly welcomed.

My father owns a property in the UK with most of his mortgage paid. He wants to help me get established in Oz, and he is considering freeing money up from his house to help. I suggested to him that, rather than giving me the money, he paid for a substantial deposit on a house in Oz, whilst I paid the reamining mortgage, so that the house is in joint names.

So he would be living in the UK, I'd be living in Oz, and we'd own a house between us.

What would be the situation if I later sell the house in terms of capital gains tax chargeable to my father in either country? How would the Australian Government view this? What would be the situation if he spends time living in the house in Oz with me over the English winter each year?

Any thoughts really appreciated.

Claire.

ABCDiamond

To begin with, I think he would need permission from the Foreign Investment Review Board

Tax wise, i'm not sure.

Seabird

Thanks

Spoke to Inland Revenue in the UK. Capital gains on overseas proerty is treated in the same way it is here. Apparently from the UK perspective you can fill in "form 17" that allows you to specify what percentage of the house belongs to each person, then any tax is charged on the percentage of the profits made upon sale. There is also a £8,500 allowance per year allowance on profit gained from sale of 2nd property before you start to pay capital gains tax.

Got to speak to Oz tax office tonight to find out what happens at their end. Will post back for others to see.

Claire.

walaj

From a UK perspective there could also be IHT implications, and these implications can arise 7yrs before his death. These thoughts need to be considered wrt the size of his estate, what his future plans are for his share of the house ie is he going to give it you.

If you think this is going to be an issue, it maybe be best to talk to an accountant with knowledge of both tax systems - Alan Collett has favourable posts on this board for a starting point

Seabird

Thanks, Walaj

Yes, I'm an only child so father's estate comes to me one way or the other. I want him to enjoy some of his money, not leave it all for me. He wants to help, but I'm keen to be helped, but also keen to protect his intrests in the meantime.

Will check out Alan Colletts posts.

Thanks
Claire.

CornishPasty

I would clarify the statement 8500 pounds allowed to be made on a 2nd property before capital gains is payable - I think to clarify you can actually make 8500 in capital gains period. So, doesnt matter if its from a 2nd/3rd/ 50th house, shares etc etc, that is your capital gains allowance. Just important to realise that if your father has shares or any other income which he will make capital gains on as I think it will eat into that 8500 allowance?

i also dont think its a rolling allowance, so if in 10 years you sold and his % saw him gain say 40,000 pounds, he might have to pay CG tax on 31500 of it, and not have saved up 10 years of 8500 per year allowance on the property. The only way he can do that is to release 8500 of the gain each year, for example selling it to you.

i think ABC diamond is correct, you need to seek approval first. This can also limit the type of house you can buy, ie a brand new house in the outer suburbs. This was the case for me which is why i waited until I had PR. Not sure if the fact you are resident changes this.

Seabird

Thanks, Cornishpasty

Yes, I realise that the allowance only applies to one year, so that at any one time you only get ~£8500 allowance. He doesn't own anyother property, and having followed the info on here I have sent an e-mail to FIRB to find out what happens if he only owns, for instance, 10% of the property. they mention that they consider investments of 15% or more as substantial investment, so I have asked them whether if he invests less than 15% I am still limited by the FIRB ruling on purchasing only new houses. Will post on here when I get a reply.

Thanks

Claire.