Selling UK house - Capital gains questions
Feb 1st 2014, 7:27 pm
#31
Joined: Sep 2008
Posts: 12,830
Re: Selling UK house - Capital gains questions
Hi all,
Whilst on the subject of capital gains tax....I have a simple question, if you bought the house then spent a considerable amount of money renovating it, which would obviously increase its market value, would that be classed as capital gains when it was time sell?
Thanks
Paul
Whilst on the subject of capital gains tax....I have a simple question, if you bought the house then spent a considerable amount of money renovating it, which would obviously increase its market value, would that be classed as capital gains when it was time sell?
Thanks
Paul
If the improvements added to the value, it would affect how much tax you pay. If the improvements are minor and you rent the place out, they can be offset against income.
If capital improvements are done, the cost of these improvements may be able to be written down as a capital cost allowance against the current value. This is usually on a reducing balance over a number of years. If you sell before the full write off has occurred, you would lose it and pay CGT on the nett proceeds of the sale - the written down value at the time of the sale.
Talk to an accountant to get professional advice.
Feb 1st 2014, 8:48 pm
#32
Binned by Muderators
Joined: Jul 2007
Location: White Rock BC
Posts: 11,685
Re: Selling UK house - Capital gains questions
This is where it sucks - the 10k profit at today's exchange rate is $18.5k, but taking into account the difference in the exchange rates from now to three and a half years ago, Canada sees my profit as closer to $50k, and will tax me on half of that at something like a third, which basically eats up any money I might make from the Oct 2010 value after estate agent fees, solicitor fees and commercial exchange rate being lower than the one the bank of Canada states...
Yes, I've paid off some of the mortgage in that time, and have been doing well through renting it out, but it still kind of feels like daylight robbery...
Yes, I've paid off some of the mortgage in that time, and have been doing well through renting it out, but it still kind of feels like daylight robbery...
I can understand why it feels wrong that you are paying tax when you are just getting back what you paid for the house. However, from a Canadian position you have made a $50,000 gain since you moved here. If you ask the CRA to give you allowance for the loss you incurred before you moved to Canada you would also have to allow the Canada Revenue Agency to tax your income before you moved to Canada. That would cause rioting in the streets!
Feb 1st 2014, 9:45 pm
#33
Muskoka, Ontario
Joined: Aug 2013
Posts: 3,045
Re: Selling UK house - Capital gains questions
Even more reason to sell the property and clear the mortgage at the time you move to Canada, not hang on to a heavily mortgaged property in another country.
Although note that the capital gain in Canada is based on a deemed purchase at the time of becoming tax resident, not when it was originally acquired. Usually this works in the new resident's favor - but not always.
Although note that the capital gain in Canada is based on a deemed purchase at the time of becoming tax resident, not when it was originally acquired. Usually this works in the new resident's favor - but not always.
Is it always the best idea to sell? The uk property we ideally wanted to keep for the kids to split as a down payment for a house for them? How do you stand if you keep it for many many years?
Feb 1st 2014, 9:53 pm
#34
Binned by Muderators
Joined: Jul 2007
Location: White Rock BC
Posts: 11,685
Re: Selling UK house - Capital gains questions
Most likely (i.e. 99% likely) you are tax-resident here.
Feb 1st 2014, 9:56 pm
#35
Born again atheist
Joined: Jul 2005
Location: Europe (to be specified).
Posts: 30,259
Re: Selling UK house - Capital gains questions
"Tax resident" here's a term I want to quibble over....we've moved here in January and I had the property valued just before I left, however I'm not working here and not looking likely to work for a while (don't even have a sin yet) the rental property is solely in my name, where do I stand with that?
Is it always the best idea to sell? The uk property we ideally wanted to keep for the kids to split as a down payment for a house for them? How do you stand if you keep it for many many years?
Is it always the best idea to sell? The uk property we ideally wanted to keep for the kids to split as a down payment for a house for them? How do you stand if you keep it for many many years?
You can keep the UK property in your own name and leave it to the kids in your will, but if you sell it in the distant future (rules may of course change before the distant future) you'd face CG tax issues. Also if you don't sell the value of the UK property (which is no longer your primary residence) would be part of your estate and potentially subject to UK Inheritance Tax.
Last edited by Novocastrian; Feb 1st 2014 at 9:58 pm. Reason: Cross post with an expert.
Feb 1st 2014, 10:07 pm
#36
Muskoka, Ontario
Joined: Aug 2013
Posts: 3,045
Re: Selling UK house - Capital gains questions
Thanks for replies, of course, I always knew the house was subject to cgt, if I understand the Canadian side right we might be ok..... My little two bedroom house is probably stuck (long term) on one side of the lower threshold stamp duty and has been for a while so I don't think I'm going to see huge gains in property value more paying the mortgage off. Need to get an accountant for husband anyway so will have to figure it out soon!
Feb 1st 2014, 10:44 pm
#37
BE Forum Addict
Joined: Feb 2008
Posts: 2,113
Re: Selling UK house - Capital gains questions
CGT is based on the difference between deemed acquisition cost and the final sale price in local currency.
If the improvements added to the value, it would affect how much tax you pay. If the improvements are minor and you rent the place out, they can be offset against income.
If capital improvements are done, the cost of these improvements may be able to be written down as a capital cost allowance against the current value. This is usually on a reducing balance over a number of years. If you sell before the full write off has occurred, you would lose it and pay CGT on the nett proceeds of the sale - the written down value at the time of the sale.
Talk to an accountant to get professional advice.
If the improvements added to the value, it would affect how much tax you pay. If the improvements are minor and you rent the place out, they can be offset against income.
If capital improvements are done, the cost of these improvements may be able to be written down as a capital cost allowance against the current value. This is usually on a reducing balance over a number of years. If you sell before the full write off has occurred, you would lose it and pay CGT on the nett proceeds of the sale - the written down value at the time of the sale.
Talk to an accountant to get professional advice.
Yes it sounds complicated....but then tax issues particulary between two countries always are. The only reason I asked is because I got the house for a good price, (it was in need of renovation) I then spent about 15000pounds on renovations, which instantly increased the market value by 20000pounds.
Then came the UK property crash of 2008, the market value lost aronnd 10000-15000pounds. I think the value has recovered slightly since, but not sure by how much, do I really have no idea where I would stand of I wanted to sell it. It may be easier just to wait past the 5 year mark so I don't have to pay tax at all.
Feb 1st 2014, 10:46 pm
#38
Binned by Muderators
Joined: Jul 2007
Location: White Rock BC
Posts: 11,685
Re: Selling UK house - Capital gains questions
Capital gains tax is my favourite tax. I like paying lots of it. For every $25.00 in CGT tax I pay I put $75.00 in my jeans for doing absolutely ****** all.
Feb 1st 2014, 10:51 pm
#39
Born again atheist
Joined: Jul 2005
Location: Europe (to be specified).
Posts: 30,259
Re: Selling UK house - Capital gains questions
Yes it sounds complicated....but then tax issues particulary between two countries always are. The only reason I asked is because I got the house for a good price, (it was in need of renovation) I then spent about 15000pounds on renovations, which instantly increased the market value by 20000pounds.
Then came the UK property crash of 2008, the market value lost aronnd 10000-15000pounds. I think the value has recovered slightly since, but not sure by how much, do I really have no idea where I would stand of I wanted to sell it. It may be easier just to wait past the 5 year mark so I don't have to pay tax at all.
Then came the UK property crash of 2008, the market value lost aronnd 10000-15000pounds. I think the value has recovered slightly since, but not sure by how much, do I really have no idea where I would stand of I wanted to sell it. It may be easier just to wait past the 5 year mark so I don't have to pay tax at all.
Feb 1st 2014, 11:19 pm
#40
Binned by Muderators
Joined: Jul 2007
Location: White Rock BC
Posts: 11,685
Re: Selling UK house - Capital gains questions
Yes, for Canadian CGT purposes it is only the market price on the day that you moved to Canada that counts. If you put money into rennovations before that then it will have increased the house's market value and so reduce your exposure to Canadian CGT.
Feb 1st 2014, 11:36 pm
#41
BE Forum Addict
Joined: Feb 2008
Posts: 2,113
Re: Selling UK house - Capital gains questions
oh right, ok I understand it a little better now then, I moved to Canada just after the property crash, so in effect I will actually pay CGT on what it was worth when I originally bought it! (which in reality is not a gain at all its just getting back to what it was worth when I first bought it!) Just my luck!
