Foreign Property Loss - Cyprus 12 October 2018 at 11:17AM edited 30 November -1 at 1:00AM in Cutting Tax 4 replies 671 views

clicka

Hello
I’m looking for some advice in respect of offsetting Capital Gains Tax made on a UK rental property when I sell it against a loss made on a property I have in Cyprus.

I was unfortunate / stupid / call it what you like to purchase a 2 bed flat in Cyprus with a Swiss Franc mortgage just before the huge property crash. I fully furnished the property in Cyprus and managed to secure a few rental bookings (few being a number you can count on your fingers!). When I had rentals I included them on my tax return, but when everything went sour and I stopped paying the mortgage / service charge / bills etc on the Cypriot property as I had no outgoing or incoming charges against the property I stopped including it on my tax return (hope this doesn’t come back to haunt me).

I am nearing a position now where I am (through lawyers) negotiating with Alpha Bank in Cyprus to finally rid myself of this nightmare. But it will come at a cost.That cost being, crudely summarised: i) fees to lawyers, ii) court fees in both UK and Cyprus, iii) an amount to pay the bank to take the property back, iv) losing every penny I invested into the property.

Now, back in the UK I was fortunate enough to be able to keep the first ever flat I purchased when I got married and moved into a house. I’ve been renting it out and have filled a tax return against it every year.I’ve not lived there for a considerable amount of time.In order for me to meet the ever growing costs of leaving the Cyprus nightmare behind me I am going to have sell this flat.

I understand there will be Capital Gains tax to pay on the sale of my flat (which is probably going to be more than I think).

My question to the forum is this, and I appreciate I will need to seek professional advice in the long term but I’m hoping to get an idea of where I stand from you guys:

Can I offset the Capital Gains made on my UK flat against the losses I have made on the Cypriot apartment?

Any advise will be greatly appreciated, including who to reach out to professionally.

Many thanks

Mark

Keep_pedalling

You can offset you losses agains your gains, but I am not sure if you can claim beyond the the amount of money you put in. You can’t claim the furnishing costs and I doubt if you can claim all those legal costs.

First thing to do though is to get a grip on what sort of taxable gain, if any, you have on the UK property.

Pennywise

Yes, but I suspect the loss on Cyprus will simply be the difference between purchase price and selling price, plus legal costs to buy and legal costs to sell. I doubt if any foreign currency losses or legal costs re the currency issues will be allowable.

londoninvestor

Pennywise wrote: »

I doubt if any foreign currency losses or legal costs re the currency issues will be allowable.

Correct as far as the CHF mortgage goes (sorry, OP).

HMRC link

HMRC wrote:

From the point of view of the borrower, the loan itself is a liability, not an asset. It follows that any loss on the loan incurred by the borrower, perhaps because of movements in the rates of exchange of the foreign currency into sterling between the receipt of the loan and its repayment, is not allowable for capital gains purposes.

jimmo

Just a word of caution. You have not yet disposed of the Cyprus property so you have not yet realised a Capital Gains loss. For your plan to work you will need to dispose of it, at the latest, by the end of the tax year in which you dispose of the UK property.
Capital gains losses can only be set against gains in the same tax year or carried forward. They cannot be carried back.
https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg15810