Capital gains tax on selling UK house after move to Canada

jem16

Looking for some help here for my son who is currently filling in his Canadian tax return and will be doing his UK tax return after the end of the tax year.

He moved to Canada in October 2012 and rented out his UK home. Rental income has been declared. In September 2014 he sold his UK home. Will any UK CGT be due and if not does it need to be declared in his UK tax return?

We believe he has to enter this information on his Canadian tax return as they look at the value of the house from when he entered Canada until he sold it and then work out any gain. There's virtually none from that point of view as he seems to be allowed to take the cost on buying minus the cost on selling as he doesn't know the value in between. As he only had the house for 5 years prices haven't changed much. I'm not sure if anyone here would have any comments on Canadian tax returns though but if anyone does I'd appreciate it.

booksurr

as far as UK CGT is concerned obviously he is liable but without the missing details no one can say if he has any tax to pay once PRR and letting relief are taken into account. Thankfully he sold before the non dom rule changed !

purchase price and date?
sales price?
(Estimated) sales and purchase costs

read the tax treaty as to whether any UK tax can be offset against Canadian tax

jem16

booksurr wrote: »

as far as UK CGT is concerned obviously he is liable but without the missing details no one can say if he has any tax to pay once PRR and letting relief are taken into account. Thankfully he sold before the non dom rule changed !

I had read on the expats forums that if he sold within 3 years of leaving, no CGT would be due.

purchase price and date?

£105k Nov 2009

sales price?

£106k

(Estimated) sales and purchase costs

Need to check on that one.

However with £1k gain at most, seems well within the UK CGT allowance.

booksurr

jem16 wrote: »

I had read on the expats forums that if he sold within 3 years of leaving, no CGT would be due.

nothing to do with being an ex pat
anyone selling what was once their main home was entitled to the 3 year rule
that reduced to 18 months wef April 2014

jem16 wrote: »

However with £1k gain at most, seems well within the UK CGT allowance.

By the time buying and selling costs are included he has a loss not a gain.

there are hundreds of posts on here explaining how PRR and Letting relief work. He won't even touch his allowance with that sort of number and can instead register his loss in case he ever needs it in the future

He rather mis-timed his purchase if all he got was £1k after 5 years !

jem16

booksurr wrote: »

nothing to do with being an ex pat
anyone selling what was once their main home was entitled to the 3 year rule
that reduced to 18 months wef April 2014

Ok - thanks.

why ask then? By the time buying and selling costs are included he has a loss not a gain.

To make sure really as I'm not familiar with CGT rules, especially with him being non-resident.

If no gain, would it still be entered on his UK tax return or is it not necessary?

there are hundreds of posts on here explaining how PRR and Letting relief work. He won't even touch his allowance with that sort of number and can therefore register his loss in case he ever needs it in the future

By entering it on the tax return - is that how it is registered?

He rather mis-timed his purchase if all he got was £1k after 5 years !

It could have been better but he's pleased to have not lost anything considering how house prices went here. They're only now recovering.

jem16

I've had a look through previous threads for PRR and Letting Relief and calculated the costs based on the buying price and selling price just now till I get a hold of my son for his buying/selling costs.

Could someone tell me if I'm doing this right or not please?

Total ownership is from November 2009 till September 2014 so 4yrs 10 mths = 58 months.

He stayed in the property from November 2009 to October 2012 so 2yrs 11 mths = 35 months. Add on final 18 months whilst it was let to give 53 months.

It was let from October 2012 till September 2014 so 23 months. 23 months minus the 18 months = 5 months.

Assuming £1k gain till I get the buying/selling costs;


PRR
£1k x (53/58) = £913.79

Letting Relief
£1k x (5/58) = £86.21

CGT

£1000 - £913.79 - £86.21 = £0 so no CGT due.

If the buying/selling costs take it into a minus figure and so a loss can that loss be offset against tax due on rental income? EDIT : On further reading it doesn't appear so.

Just to be clear also - what constitutes buying and selling costs? There's obviously conveyancing costs, VAT that I can think of but don't know if that counts or what else counts?

booksurr

jem16 wrote: »

£1000 - £913.79 - £86.21 = £0 so no CGT due.

correct

jem16 wrote: »

If the buying/selling costs take it into a minus figure and so a loss can that loss be offset against tax due on rental income? EDIT : On further reading it doesn't appear so.

correct, one it capital one is income, they can't be inter mixed

jem16 wrote: »

Just to be clear also - what constitutes buying and selling costs? There's obviously conveyancing costs, VAT that I can think of but don't know if that counts or what else counts?

legal fees, EA costs (obviously including VAT since he is not VAT registered so has to pay it as he can't reclaim it)

and before you ask...
https://www.gov.uk/capital-gains-tax/losses

jem16

booksurr wrote: »

legal fees, EA costs (obviously including VAT since he is not VAT registered so has to pay it as he can't reclaim it)

Legal fees - anything charged by solicitors to do with house purchase and sale?

VAT - fair enough.

EA costs - no EA involved as tenants bought it so a private sale.

and before you ask...
https://www.gov.uk/capital-gains-tax/losses

Thanks - I'll read through that.

Just need to find out about the Tax Treaty now. KPMG accountants dealt with his last two tax returns for both Canada and UK as it was part of his relocation expenses. They said that he'd initially pay tax in both Canada and UK for rental income but ultimately only one - there will be very little tax involved anyway but we need to check is one did refund so not paying twice.

Thanks for your help.

Spidernick

booksurr wrote: »

as far as UK CGT is concerned obviously he is liable

What makes you say that? If he's moved permanently to Canada (or will be away for at least five years) then all of the above around PPR, letting relief, etc. is moot. He will break UK tax residence for CGT and no UK CGT will be due. The new CGT rules for non residents do not come into force until this 6 April, so the old rules apply here.

If he will be returning to the UK before October 2017 then yes, the above does need to be considered, with any chargeable gain subject to CGT in the year of return (so not 14/15 in any case, unless he returns in the next few weeks). If the OP's son has been sent on an assignment then he may well be 'tax equalised', taxing him on a 'stay at home' basis in the UK as if he'd never left and which may cover CGT as well. However, if he has moved to employment with the Canadian employer (rather than remaining employed in the UK) then this won't be the case.

KPMG will be able to advise him on the Canadian side and may even be authorised to give the UK CGT advice as well.

jem16

Spidernick wrote: »

What makes you say that? If he's moved permanently to Canada (or will be away for at least five years) then all of the above around PPR, letting relief, etc. is moot.

He has no plans to return to the UK. he has now been granted Permanent Residency and bought a house over there.

He will break UK tax residence for CGT and no UK CGT will be due. The new CGT rules for non residents do not come into force until this 6 April, so the old rules apply here.

Ok - which is it then?

He will have his 2014/15 UK tax return to do as he has rental income from April to September plus some UK interest.

It looks very likely that with PRR and Letting relief taken into account, there will be a CGT loss. Does he enter it or not?

If he will be returning to the UK before October 2017 then yes, the above does need to be considered, with any chargeable gain subject to CGT in the year of return (so not 14/15 in any case, unless he returns in the next few weeks).

So as he won't be returning by then, if ever, he has no need to enter it?

If the OP's son has been sent on an assignment then he may well be 'tax equalised', taxing him on a 'stay at home' basis in the UK as if he'd never left and which may cover CGT as well. However, if he has moved to employment with the Canadian employer (rather than remaining employed in the UK) then this won't be the case.

He moved to work with the Canadian office of the firm he worked with here but basically he left his job here and started a new job there. He's basically employed by the Canadian employer. He's also about to finish with them in a week as he is starting a new job with a college with no UK connection at all.

KPMG will be able to advise him on the Canadian side and may even be authorised to give the UK CGT advice as well.

Their remit with him is finished although he may still be able to ask a question or two.

Spidernick

Basically CGT will be payable on residential property for non-UK tax residents for sales after 5 April 2015. As your son sold his property in the 14/15 tax year then no CGT will apply as long as he doesn't return permanently to the UK before the five years are up. There is nothing to report on the 14/15 UK tax return in terms of this sale (nor for future years if he doesn't come back).

On the rental pages of the 14/15 UK tax return your son should tick the box to say that UK rental income has ceased in that year. He will presumably then have no taxable income in the UK. HMRC should realise that no tax returns should be sent to him for completion going forward, but it sometimes takes a couple of years before they twig this. If returns are issued they need to be completed, even if it just means a nil tax return, otherwise fines will be levied if not completed on time.

My recommendation would be for your son to get the 14/15 return filed as soon as possible after 5 April and then write to HMRC a few weeks later confirming that he will have no UK-taxable income going forward and could they please therefore close down his Self Assessment record and not issue returns for 15/16 onwards.