CGT on a property sold abroad

Ronin1978111

Hi folks, looking for some advice on capital gains tax.

My partner owns a flat in Poland that used to belong to her grandparents, which she would like to sell, as it will help our own home owning aspirations in the UK (deposit).

I was born here and she has lived here, and been In Full time employment since 2005

She is hoping to get around 30k for It, and after paying of her mothers debts she hopes to clear around 25k.

Once sold, will she be liable to any tax?

Delphina

If she sells the flat as soon as the Polish inheritance laws allow her, I think, it is inheritance tax not CGT that you should look at. But if she has had it for a while, I hope someone else can advise you about CGT accordingly.

uknick

One is tempted to ask, how would HMRC know anything about the flat sale?

But, as one should tell HMRC of all income, you need to look at the Poland/UK double taxation rules as Poland has CGT rules, and IHT come to that. I assume there will be a tax liability there as well as in the UK.

This issue can get complicated as it involves country of domicile and residency rules.

I suggest you contact HMRC as the first port of call. I've found them to be very knowledgeable on the more "obscure" aspects of tax, which double taxation relief is.

Ronin1978111

The thought had crossed my mind wether hmrc would be any the wiser. ��

I have read about domicile/non domicile etc but like you say..it's complex and a bit of a headache to get my head around.

Does the double taxation mean that if she pays tax on the sale in Poland then she won't have to pay tax in the uk?

chrismac1

There are a few curve balls flying around in this thread. First of all, you'd be nuts to phone an HMRC helpline on this, in some call centres new starters are given ZERO hours tax training so would you like to rely on that advice?

If your partner was born in Poland than her domicile of origin is Poland. So she could claim to use the remittance basis as a non-domicile. But as there is a charge to tax of £50,000 we can rule that one out, methinks.

That leaves us with the fact that she is a UK resident for tax purposes for the 2013-14 tax year. She is chargeable to UK tax on her worldwide income and gains.

The gain is equal to the net proceeds of sale MINUS the market value at date of transfer from her grandparents MINUS any capital improvement costs.

She works that out and then deducts 10,900 which is her exempt band. My guess is that she'll end up with a negative number from that calculation and hence ZERO capital gains tax to pay in the UK.

Polish rules will differ. I am in no position to advise you on that.

uknick

Double taxation agreements generally mean you should only end up paying the highest tax liability of the two countries. That is, if Poland want £100 and UK want £200, you pay £100 to Poland and then another £100 to the UK. The idea is that you don't pay the full amount twice for the same transaction.

But, you'll need to read what the tax agreement with Poland is.

This is why I suggested you try to find someone at HMRC who knows the answer. I doubt many IFA or tax advisers, here or in Poland, have experience of the double taxation agreement with Poland/UK.

With regard to chrismac1's comments about phoning HMRC, I've used them on occasions with regard to obscure tax issues (private individuals reclaiming VAT on refurbishing properties; whether to include potentially exempt transfers for an IHT estate calculation, even though the estate is well below the IHT threshold) and mostly found them to be pretty knowledgeable. Maybe I've been lucky each time.

chrismac1

You've been very lucky, you don't have to look far on this site to find horror stories from people who've relied on duff advice given to them from HMRC helpline folk.

The UK has a full double taxation treaty with Poland and this came into force in 2007. If any Polish tax is paid, the OP simply has to enter the letters "POL" into the relevant box on the foreign income and gains section of the UK tax return.

Ronin1978111

Thanks for all your advice