thesquonk

I have a K1 visa interview at the London Embassy this month.

My fiance (Ruth) is a dual national holding both British & US passports. I hold only a British passport.

We both own properties in the UK:
Ruth has rented out her flat
I own a house that I bought with a friend 2.5 years ago and intend to rent out my room in the UK house.

Ruth and I intend to get married in the States in October and live and work in San Francisco for 2 years minimum.

We intend to keep Ruth's flat as an investment and do not intend to sell in the foreseeable future.

The house that I co-own with a friend is an investment and we intend to sell in approx 2 years.

My questions are:

Considering that Ruth and I will be married and my friend and I intend to sell the house in 2 years time, what are the Capitol Gains Tax implications for us in selling the house while
a) Ruth and I are still in the US?
b) Ruth and I return to the UK?
and
c) how can I avoid paying any CGT at all?

Many thanks

Tom

Telman.8

"thesquonk" <[email protected]> wrote in message news:[email protected]...
    > Considering that Ruth and I will be married and my friend and I intend to sell the
    > house in 2 years time, what are the Capitol Gains Tax implications for us in
    > selling the house while
    > a) Ruth and I are still in the US?
    > b) Ruth and I return to the UK? and
    > c) how can I avoid paying any CGT at all?

The CGT rule for a house (apartment, etc.) is simple enough.

If you were living in it and sell it within 2 years of moving out, no CGT. If you
were living in it and move out, and then return to live in it within 2 years of
moving out, the period of non-occupation is ignored. So, if you are going to sell
within 2 years and actually do so, you should be okay.

To cover yourself within any lease you may arrange whilst you are away ensure there
is a clause in that lease that says the tenant can be required to leave after (say)
one month's notice if you require the house yourself for your own and your family's
accommodation if you return to the UK. (This has more to do with protected
tenancies, but is a useful safeguard to you if you want to avoid CGT.) You will need
to speak to a solicitor to get the lease drawn up.

Telman

thesquonk

Telman

Thank you for the reply - really helpful. Just one more q:

What could I do to avoid CGT if we decided to sell the house AFTER a 2 year period - whilst still in the States or in UK?

Thanks

Tom

Telman.8

"thesquonk" <[email protected]> wrote in message news:[email protected]...
    > What could I do to avoid CGT if we decided to sell the house AFTER a 2 year period
    > - whilst still in the States or in UK?

I think you should direct this question to a tax specialist. I have a knowledge of
tax, but I am not a specialist.

Telman

Ipswich448

The replies you have had so far are correct, but relate to 'Principal Private
Residence' (PPR) Relief. As an individual you have one PPR, as a married person you
have the same PPR as your spouse, so you effectively lose one PPR on marriage. When
you marry therefore, one of your properties falls into the CGT net. You need to
elect (within two years) for one of your properties to be treated as your PPR, if
not, on sale you may find that the Inspector decides for you, probably not the one
you wanted.

To avoid CGT altogether, you could consider getting your future wife (assuming she is
not uk domiciled) to set up an offshore trust to hold the properties. This involves
lawyers and offshore trustees, it is not cheap, so only worth considering if the gain
is likely to be large.

You can however minimise your future CGT bill, by taking some simple steps:-
1) Estimate the gain, you may be worrying about nothing, after taking into account
the original cost, annual exemption, and taper relief. Bear the gain and the
potential for sale in mind when electing for PPR.
2) Consider holding the property in joint names, there is no CGT on transfer, and on
sale the gain is split between you. This gives you two annual exemptions (£7,700
each), and as the tax is paid at the taxpayers highest rate (up to 40%), you may
be able to take advantage of your spouses unused lower rates.
3) Keep records! Improvements to the property (rather than repairs) are a deductable
cost. Make sure you have original (not copy) receipts for that new kitchen,
bathroom, sauna, the Inspector may ask to see them.

So far you have only mentioned CGT, don't forget you need to register (or your agent
or tax adviser on your behalf) as a non-resident landlord. If you don't your tennant
may be asked to deduct tax on his rent and pay it to the Collector of Taxes.

Also, don't listen to anyone who says 'the Inland Revenue won't find out' they may
and often do. The Inspector frequently trawls local papers etc for lettings adverts,
and visits the local rent office for landlords details, and the Capital Taxes Office
send him details of sales. The biggest source of information is however tennants or
neighbours with a grievance!

All in all plan ahead, and keep your paperwork up to date, or else employ someone to
do it for you, it could save you heartache later on.

Last of all, but not least, enjoy your wedding day!