gozzy

Hi everyone
Can someone help me out and answer a question? We are in the process of moving to NZ and are thinking about down sizing our house in the UK and renting out the new house . Whilst trying to buy another in NZ. Reason is just incase we have to come back to the UK and also may help to ride out the down turn in the uk housing market. My question is, will the house in the UK be taxable if we sell it in 2 or 3 years time, as we don't live in it, or exempt ? Or would it be better to cut all ties and go for it?
thanks Gozzy

Robbo25

I think this leaflet may help you, and that you will be able to sell without Capital Gains Tax in the first three years of leaving if I am reading it right....... http://www.hmrc.gov.uk/helpsheets/hs283.pdf

Genesis

Yes I think I have heard that too..so that's good aye??

gozzy

Thanks guys
Will read through the link and hopefully make sense of it.
Gozzy

littleal

If you never live in it before you emigrate, I think you will have a CGT liability so do think carefully and get professional advice.

Alison

squeekybobo

Hi Gozzy,

If the house you are selling is your main residence and you sold it the day after you left the UK, no CGT would be due as you'd get relief under the Principle Private Residence rules (PPR).

This relief can sometimes be restricted if you haven't lived in the property for a long while or have rented the property out for example. However, the last 36 months of ownership of your PPR is always considered exempt so even if you didn't live in it for 2 years, or rented it for 2 years, then this period would still count for PPR and as such, no tax - WOO!

One thing you may want to look out for is that if you are a 'long term' resident of the UK (tax resident for 4 out of the last 7 years), you will have a 5 year trailing liability to CGT on assets sold that you owned before you left. Basically, if you an asset after your departure and then returned to the UK before the 5th tax year after your departure then you would incur CGT on anything you sold after your departure and before your return. Obviously, if this was your house then the CGT would be signifcantly reduced as you have the 3 year exemption but on the basis you're selling a 12 bedroom country house in Hampshire, then it could still be quite a bit of tax!!!

Hope that makes sense...

gozzy

Thanks squeekybobo
Sounds complicated , so best option may be to sell and not buy other property and hope we don't want to come back to the UK.
Gozzy

squeekybobo

Well it is a bit complicated - keeps me in a job so I'm not complaining!

I suppose, assuming you've lived in the house for the entire period of ownership, you'd either sell it:

1. Before leaving - likely no CGT charge in the UK
2. Within 36 months of leaving - likely no CGT charge in the UK
3. After 5 (tax) years of leaving - No UK CGT as you drop out of the scope of UK tax

Hope that makes things clearer, obviously I can't comment on the NZ side of things (yet!), although I'm aware that there is a relief avaliable for some (?) new residents of NZ for the first 4 years that you are not taxed in NZ on overseas income. If that is the case (and I'd recommend speaking to a NZ specialist over there), if you sold at point 1. or 2. above, then you'd be either not in NZ or inside the 4 year period and hopefully no NZ tax.

If you sold after 5 years of leaving, you may drop out of UK system but find you are taxed in NZ. That said, I think NZ doesn't have Capital Gains Tax as such but some disposals are taxed - again, have a word with a NZ specialist or PM me in about a year when I should know all this!!!

I've rambled haven't I.... sorry!!!

chocolate cake

Sorry you don't mind if I clarify one point, as I'm considering renting my house as a couple of offers on it have fallen recently due to the buyers being unable to sell their own houses.
I've lived in my house for some 7 years prior to moving to NZ in mid March, if I was to say rent it out now, for say 3 years and then sell. There would be some capital gain, but would that be assessed on the difference between my final sale price and purchase price? or between the final sale price and the valuations I have had prior to renting it? or the latter immaterial

squeekybobo

Right... OK... Let me first add the standard "the following does not constitite professional tax advice and cannot be used for the purposed of avoiding UK taxes" disclaimer

If you sold your house after owning it for 7 years then renting it for 3 (i.e. 10 years in total), the gain made on sale will be pro-rated across these two periods:

1. 7 year period in which you lived in the house: 7/10ths of the gain will be exempt under the PPR rules as mentioned previously.
2. 3 year period in which you rented the property out: Generally speaking, this portion of the gain (3/10ths) does not qualify for PPR as you haven't lived in the property. You can claim what's known as Letting Relief, which will give you a maximum exemption of £40k if I recall correctly.

So, if you make a 100k gain on the sale:

70,000 relates to the period in which you lived in the house = exempt from UK CGT
30,000 relates to the period in which you rented the property, as as it's under £40,000 (there are some other restrictions), you should be able to claim letting relief to exempt this part of the gain.

If you made £200k on the house, 60k would relate to the letting period and therefore you can only claim £40k exemption leaving a taxable gain of £20k.

As we are now in 2008/09 tax year and the good chancellor has changed CGT substantially, your gain is sale price less cost price and costs of acquisition and sale (i.e. legal fees). Indexation allowance, i.e. provision for inflation, and taper relief were removed in the last budget but CGT is now charged at 18% rather than 40% so swings and roundabouts.

Consider this a guide but please, take professional advice before doing anything.

gozzy

hi guys
the more you tell me the more it looks like it will be better to sell and not hold on to a property in the UK. After all the two things you can not escape are death and tax,i just thought it would be a safety net if we didn't get on in NZ. Looks like it may just be a headache.

Thanks Gozzy

2poor4this

What a great thread, answers most of my questions without having to ask.

One question it has raised which I'd not even thought of until reading this was the point about overseas income.
We're more than likely going to rent our house, the idea was to keep the rental money in the UK and transfer it maybe once a year to New Zealand as a lump sum, will this be classed as an income and be subject to tax in New zealand?
How do they treat the transfer of savings? I was not going to move all our money to New zealand in one go but if it's going to complicate things we might have to have a rethink.

I just wish they'd hurry up and choose our numbers on the lottery.

grahamwookie

Hi all, Mr Gozzy, let me know what you decide as we have a house (lovely 1901 character) and we're thinking of renting it... but when yous ee the house prices in NZ. We need the cash!

tar

squeekybobo

From a UK perspective - If you're renting in the UK it will be deemed as UK sourced income and you'll be taxed on it regardless of your UK residency position unfortunately.

You can make an election for your letting agent to pay you gross of UK basic rate tax (helps with cash flow) but you will still need to pay tax on any profits when filing a return.

But then, as you probably know already there are so many deductions you can take from rental income that few people turn a taxable profit and so don't pay any UK tax...

chocolate cake

Thanks for the above, disclaimer fully accepted.

Yeah, I appreciate there's usually plenty of expenses to sent aside rental income. However I stupidly in retrospect settled the majority of my mortgage by cashing in my cash isas just prior to moving to NZ and have little in the way of mortgage charges unless I look to remortgage which would be a no doubt be nightmare to arrange from NZ.