Capital Gains Tax, Domicile, and the 3-year rule

fromjenny

Can anyone tell me if the 36 month relief for a Primary Residence is still claimable for the owner of a property, who now wishes to transfer (as a gift) that UK property to a child (living at that property) when the owner moved abroad 24 months ago and rents a small flat there?
This is possibly quite a common situation for pensioners who wish to 'test the water' before making a permanent move abroad (ie renting abroad whilst still owning their 'permanent' home in the UK), as part of thier IHT planning.
From what I have been able to interpret (don't take this as gospel) the HMRC guide on Residence, Domicile states that UK tax allowances are not claimable for those who are not domiciled or ordinarily resident in the UK, and the Annual Exempt Amount to set against CGT when disposing of assets (ie a transfer by way of a gift) is also lost.
Does that probably also mean that the 3-year rule (Private Residency Relief) so you can claim a property as your main home whilst not actually living there, is also not claimable?
This would potentially have a huge tax bill implication for us, and make the transfer of the property not worth while, as a means for planning for any IHT due further down the road as it might be less than the CGT due after transfer!
Or have I got it all wrong? Oh please help.

antrobus

You can always have a look at the HMRC help sheet here:-
https://www.hmrc.gov.uk/helpsheets/hs283.pdf
It says that "The final 36 months of your period of ownership always qualify for relief, regardless of how you use the property in that time, as long as the dwelling house has been your only or main residence at some point."

It doesn't seem to qualify that statement in any way. I understand what you say about allowances, but a) I don't think private resident relief is an 'allowance' and b) you are UK domiciled and are also probably have ordinary residence despite the fact that you are a non resident. Oh yes and I believe it's the case that once you've been non-resident for 5 years your'e not liable for CGT anyway - tho' the rules in that regard can be a bit complicated.

What I would say is that if you're talking about a potential 'huge tax bill' then you probably should consider consulting a real proper accountant, a member of the Chartered Institute of Taxation for example. You'll be much better off in the long run.

jimmo

Domicile is a bit of a red herring in your circumstances and can safely be ignored.
UK Capital Gains Tax is only chargeable on people who are resident in the UK, or people who carry on a trade in the UK
http://www.hmrc.gov.uk/manuals/cgmanual/CG25000.htm
Actually we don't even need to look at your residence status in any detail either.
If you are non resident in the UK you cannot be liable to capital gains Tax in the UK.
If you are, for some reason, still regarded as resident in the UK you will definitely qualify for private residence relief including the last 3 years of ownership.
antrobus has already given you a link to Helpsheet 283.
Either way around, you pay no UK Capital Gains Tax.
Whether, as a resident of Spain, you are liable to Spanish Tax is something you will need to deal with in Spain.

fromjenny

Thank you antrobus and jimmo I shall follow your links and advice you've provided. Establishing residency and or domicile does appear to be the critical factor, in establishing where the tax is payable (UK or Spain) on the transfer of property in UK from the owner (in Spain) to the transferee (in UK). The Domicile flowcharts produced by HMRC showed a strong inclination toward Spanish domicile. But its a guide only, and states its possible to be resident in both UK and abroad under their own rules. I wonder if there's any way that Residence and Domicile can be more concretely established to save problems further down the road? Is a "Treaty of Residency" an actual document that proves resident status of any given country?
I shall investigate further.
Many thanks again.
fromjenny

jennifernil

In the UK tax system, Residence and Domicile are 2 totally different things. Just because you have stayed in Spain for 24 months does not mean you are domiciled there. There is a domicile of birth, and a domicile of choice.

To be considered domiciled in Spain, you would need to cut ties with UK, for example, sell or dispose of property, have no intention of returning here.

fromjenny

Thank you jennifernil. This seems to get more complicated! I phoned the Tax office, who made quite clear that a person resident abroad no loner has a Capital Gains Tax issue here in the UK. When I attempted to have this confirmed by the helpline attendant, (in term of what the C.G.T situation would be) I was simply told continually, that for the owner of a property here in the UK (who has made a permanent move abroad) C.G.T in the UK would not apply. On the face of it, it was an "end of" answer but I will be seeking Prof tax advise nonetheless!
So thank you for your post. And any readers....don't please take the above info I've given here, from Helpline as final.