Returning to UK Tax

radeon

Hello, I'm not sure if I am actually doing this yet but I have some questions about returning to UK having been abroad (outside Europe) since January 2007, I am a UK citizen and lived and worked in the UK all my life before this.

My UK property has been rented since Jan 2007, purchased in Feb 2002 and I lived there until I left, I am registered as a non resident landlord.

Regarding CGT if I was to sell the property, I know my non resident status exempted me from CGT until the rules changed from April 2015, so CGT is now due on any gain from then onwards even if I stay outside the UK.

But what if I was to return to UK? would I lose the no CGT for the period Jan 2007 - April 2015, or can I still claim it for the time I was outside the UK (Assuming I will now live in the property myself).

Also what if I returned for just a short time to work in the UK, is there a maximum time I am allowed to be in the UK (per year?) so don't lose the CGT that's not chargeable (Assuming I will continue renting property out).

Thanks.

jimmo

If you sell the property before you return to the UK the non-residents' charge will come into play and there are 3 option for how the charge is calculated.
If you sell after returning to the UK you will lose the "benefit" of being non-resident up to April2015 but that may not be such a terrible thing.
The first thing you need to consider is that, regardless of when you sell, you will qualify for Private Residence Relief because the property has been your main or only home.
You then need to break down the whole period of ownership into exempt periods and chargeable periods.
The period from purchase to when you moved out is clearly a period of residence and therefore exempt
Very, very importantly there seems to be a good chance that the following period will count as a period of absence and if so will be treated as a deemed period of residence.
Two potential stumbling blocks to that:
1) A period of absence normally requires a subsequent period of actual residence. However that can be overcome if your job prevents you from being able to move back in. At the moment you are working abroad so presumably that condition is satisfied. If you move back to the UK before selling you really should move back in unless your new job is more than commuting distance from the property.
2) A period of absence counts as a deemed period of residence (in the property, not necessarily a period of residence in the UK) but whether it will count as a main residence for CGT purposes will depend on your housing arrangements whilst working abroad.

This is all covered by Help Sheet 283 published by HMRC.
https://www.gov.uk/government/publications/private-residence-relief-hs283-self-assessment-helpsheet/hs283-private-residence-relief-2018
I couldn't find any explanations of the 3 alternative methods of calculating the non-residents charge but if you use the following tool there is some explanation after it produces the appropriate calculation.
https://www.gov.uk/tax-relief-selling-home

It seems a bit cumbersome but I suggest you have a play around with it
If you want more help here you will need to explain your housing arrangements whilst abroad or confirm that you will not qualify for a period of absence.

radeon

Thanks, Yes I think I understand there is no CGT for the time I lived in the property + an extra 18 months (PRR Private residents relief?)

I didnt know about period of absence. I left the UK for a year off something I always wanted to do and decided if I didn't do it now I never will, so I left my job, I thought I would return back to UK but didn't.
My work history since leaving the UK is very patchy, I have worked a few times for short periods of time plus some other work but that was not official in any way so could not show anything. So I don't think I would be able to qualify for a period of absence. I don't own any other property in the UK or elsewhere, living in rented property.

I've use this calculator before and with the apportioment method I would not pay GCT if I was to sell the house today whilst outside the UK. (Its not a very expensive property by UK standards, but has doubled in value). url not allowed …. /calculate-your-capital-gains/non-resident/

I am not sure what lettings relief is, is this something extra I could claim for or is it the same thing as PRR the alowance for the time I lived in the property + 18 months. I am confused about the difference.

Am I allowed to spend a certain amount of time living and/or working in the UK per year and still claim the non-resident relief?

Thanks a lot for your help.

radeon

Think I am starting to get it now. I have worked out this very rough example assuming not claiming any non resident relief.

Buy for 59K, 3k expenses, sell 130k. gain = 68k.
Own property for 17 years (to Feb 2019), 68k/17=4k per year gain.
PRR 5 years (lived in property) + 1.5 years extra. 4k x 6.5 = 26k relief.
Lettings Relief is lowest of either same amount as PRR, 40K or same as chargeable gain,
so relief = 26K as thats the lowest of the 3 options.
CGT = 68k-26K-26K - CGT allowance 11.7K = 4.3K, So 18% is due on that amount.

Am I on the right lines?

jimmo

You seem to be getting there. Letting Relief is calculated in the same way as PRR by calculating the gain attributable to the lettings period but then applying the restrictions you are already aware of.
We now know that if you sold the house today you would pay no CGT but if you are looking at various possibilities I am not convinced you should ignore periods of absence. I initially went for the simple option assuming you went abroad to work but you have a potential period of absence from January 2007 to today and beyond. You then need to break that period of absence into qualifying and non qualifying periods in the most tax efficient way.
In your case you potentially qualify for 3 years for any reason and all the time you worked abroad. It sounds to me like you have mainly been working for cash in hand with nothing going through the books. If so I doubt that you have broken any UK laws so can you prove that you were actually working? Either way, the 3 years for any reason is well worth claiming.
Allocating that 3 years to the period April 2015 to April 2018 would give you 3 years of deemed residence. Then you have the final 18 months of ownership giving you until October 2019 to sell as a non resident tax free, and that's not even considering lettings relief.
If you were to become resident in the UK it would be different but I will leave you to crunch the numbers through the HMRC tool.
As regards your question about residence and non residence there is now a statutory residence test. I gather its a lot simpler than in my days as a taxman but I have no experience of it.
https://www.gov.uk/government/publications/rdr3-statutory-residence-test-srt

radeon

Thanks jimmo,
I read about the period of absence and saw you could have 3 years for any reason but I assumed that if you were absent over the 3 years you could not claim, so thats good if I can actually claim that for a start. My 'work' was online selling but was mostly actually in my wifes name, there have only been a few periods of employment. I will check through the residence tests.

As I said I am not sure I will be returning I just wanted to be clear about the rules, I don't really want to return, I am married here (as it is currently we would not qualify be able to return with her), there are many financial factors making things harder over the years (paid employment, fx rates, mortgage etc etc).

radeon

Some bad news in the budget yesterday? I've tried to understand what has changed, looks like the 18 months extra PRR has gone, but what about lettings relief has that gone also?

In my earlier example...

Buy for 59K, 3k expenses, sell 130k. gain = 68k.
Own property for 17 years (to Feb 2019), 68k/17=4k per year gain.
PRR 5 years (lived in property) + 1.5 years extra. 4k x 6.5 = 26k relief.
Lettings Relief is lowest of either same amount as PRR, 40K or same as chargeable gain,
so relief = 26K as thats the lowest of the 3 options.
CGT = 68k-26K-26K - CGT allowance 11.7K = 4.3K, So 18% is due on that amount.

Has this now changed to...

Buy for 59K, 3k expenses, sell 130k. gain = 68k.
Own property for 17 years (to Feb 2019), 68k/17=4k per year gain.
PRR 5 years (lived in property). (No extra 1.5years) 4k x 5 = 20k relief.
(No Lettings Relief ??)
CGT = 68k-20K - CGT allowance 11.7K = 36,300, So 18% is due on that amount.

Am I right with this, I will be due to pay GCT on an extra 32,000GBP ?

00ec25

radeon wrote: »

Am I right with this, I will be due to pay GCT on an extra 32,000GBP ?

it all depends on your date of sale

read the budget properly
https://www.gov.uk/government/publications/budget-2018-documents/budget-2018

Capital gains tax – To better target private residence relief at owner occupiers, from April 2020 the government will reform lettings relief so that it only applies in circumstances where the owner of the property is in shared occupancy with the tenant. The final period exemption will also be reduced from 18 months to 9 months. The government will consult on these changes. There will be no changes to the 36 months final period exemption available to disabled people or those in a care home. (57)

radeon

Thanks, its not sold yet its something I have been baring in mind for the future.

I have read several reports in newspapers and it was not clear, some only mentioned the 18 to 9 months reduction so was not exactly sure. Seems a bit unfair to those that only own a single property, MAYBE understandable if you are claiming when you already own another property.

Will read the report you linked to, I says they will consult on it so it could change?... unlikely. Maybe I will need to sell before April 2020 to avoid. Every budget now they seem to be having a go at landlords.

radeon

Is the exempt CGT for non residents still in place? So only have to pay CGT on gains made after 5 April 2015 if you are a non resident landlord? The calculations above were not taking this into account as I was asking what would happen if I returned to the UK.

This link seems to give more detail. (sorry it would not let me post the link, the title is "Budget 2018 Private Residence Relief: changes to ancillary reliefs")

Looks like PRR for the time you occupied the property stays, the 3 years exemption for any reason (as mentioned by jimmo) is gone .
Lettings relief will go except for when shared occupancy with tenant (which was lowest of either same amount as PRR, 40K or same as chargeable gain, in my calculation worth 26K).
Not really sure about the final period exemption, it says reducing to 9 months, is that only for shared occupancy or for all? cant work out if it will be reduced to 9 month or zero (previously 18 months).

Am i understanding this correctly? Thanks

00ec25

radeon wrote: »

Is the exempt CGT for non residents still in place? So only have to pay CGT on gains made after 5 April 2015 if you are a non resident landlord? The calculations above were not taking this into account as I was asking what would happen if I returned to the UK.

This link seems to give more detail. (sorry it would not let me post the link, the title is "Budget 2018 Private Residence Relief: changes to ancillary reliefs")

Looks like PRR for the time you occupied the property stays, the 3 years exemption for any reason (as mentioned by jimmo) is gone .
Lettings relief will go except for when shared occupancy with tenant (which was lowest of either same amount as PRR, 40K or same as chargeable gain, in my calculation worth 26K).
Not really sure about the final period exemption, it says reducing to 9 months, is that only for shared occupancy or for all? cant work out if it will be reduced to 9 month or zero (previously 18 months).

Am i understanding this correctly? Thanks

read the document you linked to again, your answers are there

"To ensure that PRR is better focussed on owner-occupiers, from April 2020 the rules on two ancillary reliefs will change."

the reliefs mentioned are 1) LR and 2) the final period exemption. It does not change anything else

- you do not live in the property with a lodger therefore you will no longer be entitled to LR at all
- the final period exemption (after April 2020) will be 9 months for everyone and anyone