Selling my property abroad and capital gains tax

Coastie

Hi
I have a property in Turkey that is worth €200,000 and have been offered the full value for it. If I sell it and bring the money back into the UK, how much capital gains will I have to pay?

Thanks

roger_c

Broadly...€200,000 less what it cost you (or probate value if inherited from the estate of a deceased person), less any selling/purchase costs such as legal fees/survey fees, less the annual exemption £10,600. This produces the 'taxable gain' figure which is subject to Capital gains tax (CGT) at either 28% or 18% or a mix of both depending on your level of income for the tax year in which you dispose of the property.

Coastie

Thanks for that. I bought the property for €215000 when I sold my property in the UK 7 years ago. So I am selling it at a loss. Where would I stand with this??

Cook_County

You convert the costs, improvements and sale proceeds into Sterling using spot rates on the dates of each transaction. This may be a gain in Sterling but loss in foreign currency.

What does it look like when you have converted at various spot historic and current exchange rates?

antrobus

Coastie wrote: »

Thanks for that. I bought the property for €215000 when I sold my property in the UK 7 years ago. So I am selling it at a loss. Where would I stand with this??

You bought it in 2005 for €215000 when the FX rate was about 0.7 so that's about £150k and are selling it for €200000 with the FX rate at around 0.80 which is about £160k. Looks like a profit to me - but that's the kind of calculation that matters. (And it would depend on the actual FX rates you deal it etc.)

I'd say that it looked very unlikely that you've made any gain that would be in excess of your annual CGT limit.

Randvegeta

You bought it in 2005 for €215000 when the FX rate was about 0.7 so that's about £150k and are selling it for €200000 with the FX rate at around 0.80 which is about £160k.

That's interesting. Though I see why it may be like that, what would the case be for the following circumstances.

1.) If the 215,000 Euros was purchased before the home was purchased? Which rate of exchange do you use. The time at which the house was bought or the time you bought your Euros?

2.) What if you earned your money in Euros and therefore don't make a GBP gain since you started with Euros in the first place?

3.) What if you lived in Turkey at the time you bought it?

4.) What if you had foreign currency (like USD) and exchanged to Euros in order to pay for it. How would gains be calculated?

The case you describe is very simple one. But what about more complex situations?

Not that I am subject to UK tax any more, but as my business is internet related, I earn in multiple currencies, and I like to keep those currencies instead of exchanging them to my local one so I wonder how such CGT would work for me. This is why I am asking .

Randvegeta

Oh yes, coasting, sounds like you probably don't have any taxable gains whichever way you look at it.

jimmo

To cut a very long story short, foreign currency is a chargeable asset subject to UK Capital Gains Tax.

In question 1 of your example:

The purchase of 215,000 Euros is an acquisition having a sterling cost using the exchange rate at the time of acquisition (plus costs).

On the date the property was bought there was a disposal of one chargeable asset, the Euros and the acquisition of another chargeable asset, the property.

The disposal value of the Euros and the acquisition value of the property will be the same figure, the sterling equivalent on that day.

Therefore, on the date of acquisition of the property, there will have been a Capital Gain or Loss on the Euros.

When the property is sold there will be a Capital Gain or Loss on the property and a new acquisition of Euros and there will be a Capital Gain or Loss on the Euros if, or when they are disposed of.

http://www.hmrc.gov.uk/manuals/cgmanual/CG78314.htm

2) Very strictly, if you earned your money in Euros, you should identify exactly when you were paid each and every Euro that you had saved and use the exchange rate on each payday.

3) As for 2. Where you lived has no significance.

4) Disposal of USD in exchange for Euros is exactly the same. It is the disposal of one chargeable asset (USD) and the acquisition of another (Euros).

http://www.hmrc.gov.uk/manuals/cgmanual/CG78300+.htm

Randvegeta

3) As for 2. Where you lived has no significance

.

I find that hard to believe.

Are you saying if you lived in Germany between 2005 and 2012 and earned Euros during that time paying only German taxes, and that in 2005 you bought a property for 100,000 EUROS using cash you already had in Euros (the currency in which you were paid). For UK CGT purposes you take the exchange rates of then and now?

In 2005 100,000 Euros was worth about 69,000 GBP.

Now, in 2012, if the house is still worth 100,000 EUR, it is worth about 80,000 GBP.

So in the eyes of the UK, there is a gain of 11,000 GBP?

What if you then allow the money to sit in your Euro account, and in 5 years time the Euros are worth the original 69,000 because the pound had strengthen against the Euro? Is that a tax deductible loss?

I mean, I can see the 'logic' in what you're saying, but it does seem strange that you pay tax on an artificial gain. And if you purchased property in Europe while you lived there for x and sell for x, you don't actually make any gains since you never converted GBP in the first place...

Better yet, if there was hyper inflation going on, and the pound was rapidly devaluing. Then you would have to pay even MORE in tax?

Lets say 1GBP can buy 1.25 EUR today. You buy a place NOW for 125,000 EUR (So 100K GBP). If in 2022, GBP has devalued to 2GBP 1.25 EUR, but the property is still worth 125k EUR, you would have a property worth 200K GBP. So you have a gain of 100%? And if you lived and worked in Germany when you bought it, you would just have to simply suck up the LOSSES and pay tax?

grey_gym_sock

if you live outside the UK, you may not be subject to UK CGT at all, but that's the only way in which where you live is relevant.

GBP is used in calculating gains because they need to use some common measure to compare values. it's nothing to do which whether ppl actually convert their assets into GBP.

you could argue that it made more sense when there was indexation relief available (so in effect values were compared based their purchasing power equivalent in GPB, rather than nominal GPB), but there you go ...

jimmo

Randvegeta wrote: »

.Are you saying if you lived in Germany between 2005 and 2012 and earned Euros during that time paying only German taxes, and that in 2005 you bought a property for 100,000 EUROS using cash you already had in Euros (the currency in which you were paid). For UK CGT purposes you take the exchange rates of then and now?

In 2005 100,000 Euros was worth about 69,000 GBP.

Now, in 2012, if the house is still worth 100,000 EUR, it is worth about 80,000 GBP.

So in the eyes of the UK, there is a gain of 11,000 GBP?

What if you then allow the money to sit in your Euro account, and in 5 years time the Euros are worth the original 69,000 because the pound had strengthen against the Euro? Is that a tax deductible loss?

I mean, I can see the 'logic' in what you're saying, but it does seem strange that you pay tax on an artificial gain. And if you purchased property in Europe while you lived there for x and sell for x, you don't actually make any gains since you never converted GBP in the first place...

Better yet, if there was hyper inflation going on, and the pound was rapidly devaluing. Then you would have to pay even MORE in tax?

Lets say 1GBP can buy 1.25 EUR today. You buy a place NOW for 125,000 EUR (So 100K GBP). If in 2022, GBP has devalued to 2GBP 1.25 EUR, but the property is still worth 125k EUR, you would have a property worth 200K GBP. So you have a gain of 100%? And if you lived and worked in Germany when you bought it, you would just have to simply suck up the LOSSES and pay tax?

Your example doesn’t make sense to me because if you lived in Germany between 2005 and 2012
and earned Euros during that time paying only German taxes it is extremely likely that you would have been resident in Germany and not resident in the UK. Therefore the UK tax authorities would have no interest in what they would see as your disposal of Euros when buying the property.

If, for some strange reason your were resident in the UK throughout, that would be a very different story but, like you on another thread, I am too lazy to research any further.

However it is perfectly feasible that someone who was resident in Germany in 2005 when they bought the property could become a UK resident in 2012 and become potentially liable to capital gains tax when they sell the German property.

In that case the 2005 acquisition cost is converted at the spot rate on the acquisition date and the sale proceeds are converted at the spot price on the date of disposal.

Therefore your example is accurate. There will be a capital gain of £11,000.

At the same time, as a UK resident, you will have an acquisition value of the Euros from the sale but if you leave your Euros in a Euro bank account there is no disposal and no chargeable occasion for capital gains tax purposes.

If or when you convert your Euros into something else that will be a chargeable occasion giving rise to a capital gain or loss. Since the demise of indexation relief and taper relief in the UK, inflation, hyper-inflation etc are irrelevant. If you profit from leaving your money in Euros you will pay capital gains tax on those profits when you cash them in. If you lose you will have a capital gains loss. Whether you can utilise that loss is another matter.