Well HMRC make this as clear as mud!!

HELP!!

We have lived in Canada for 2 years now (since May 2011) and have rented out our UK property since we left.

We are looking to sell the property but as yet the market isnt very good so have decided to rent out for another year, we would have then have been out of the property for over 36 months!

Cant make heads or tails from the HMRC website !!

Can anyone advise an easy way to calculate how much Capital Gains tax we would pay or if a % is used.

I can PM exact details if needed

Thanks very much

Confused Mrs Us3

UK rules are that your principal residence is not subject to capital gains tax for the time you lived in it plus 3 years. Assuming you lived in it all the time you owned it in the UK, if you sell before May 2014 you will have no capital gains tax liability in the UK.

If you sell between May 2014 and May 2016 any increase in value between May 2014 and the final sale is liable to CGT. After May 2016 the UK will not tax you on your sale proceeds so thereafter free of UK CGT.

If you put it on the market in June 2014 what are the chances of it selling for more than its value in May 2014? Slim at best. The longer it remains on the market the less likely it is to sell for more than its May 2014 value. Unless the property market picks up dramatically in the next year and you expect multiple offers when the house is put up for sale I don't think CGT is something to worry about.

Phew.

Thanks so much

What about the rental income since you arrived ? Have you been declaring that ?

JonBoyE

Is this correct wrt UK capital gains? I din't think it was? They are not based on values on dates, but on years of holding.

ie if you owned it for total 12 years, and 1 year is liable for capital gain then you owe 1/12 of the gain since the entire 12 years of ownership, not the gain in one year.

This is very different to canadain capital gains 9ie deemed selling dates) and will adversely affect anyone who has a stack of equity due to house price rises already realised before then have years liable to capital gain in which there have effectively been no gains?

We looked into this fairly extensively and these were our conclusions..........

On checking you are right. I was thinking that the three years after you leave the house counts as a principal residence, but it is the last three years you own it. So if you sell in years 4 and 5 it will be the proportion of the total gain attributable to year one and two that is potentially taxable.

If you keep it for 5 years or more while resident in Canada, HMRC will not pursue you for the CGT.....right?

But you will have to pay CRA any increase in gain from the time you landed in Canada.....right?

Jonboye will correct me if I am incorrect

Regards

Andrew

Yes, right. gryphea spoke to HMRC several years ago to confirm this. Essentially, the UK charges capital gains tax to people who are tax resident in the UK when the capital gain is realized. They don't like people becoming conveniently non-resident just before they realize a large capital gain, only to resume residency shortly after. In practice, they seem to work on the assumption that after 5 years away from the UK you are genuinely non-resident.

Oh yes.

PS. There used to be a nice little wheeze that worked well for entrepreneurs selling their businesses. Rather than sell their company on March 31 1996 and suffer capital gains tax in 95/96 they would exchange their common shares for secured retractable preferred shares with a redemption value equal to the “sale” price. This is a share for share exchange so not a taxable event.

April 1 1996 the entrepreneur gets on a plane to sunny Spain. April 6 1996 the entrepreneur redeems his preferred shares . Now the rich entrepreneur can relax in Spain, or travel the world. The only thing he has to be sure of is not to set foot in the UK until April 7 1997. Provided he can manage this he would have been non-resident for the whole of the tax year in which he made the capital gain so it is not subject to UK capital gains tax.

I don’t know if this still works but it certainly used to and I have seen it done in real life. I only hope my mythical entrepreneur didn’t like Spain so much that he invested all his tax-free millions in Spanish vacation properties.

Any of those nice little let outs if you have a UK property and are subject to spanish CGT!! I have owned the property since 1988 and lived in it until 2000 but I believe I am still subject to pay on its gain since I purchased the flat in 1988!!