Sell rented holiday house in Cape town and transfer funds back to UK account. Tax to pay [Merged]

Daveblue1

Hello 
Really do not know who to speak to, so some guidance would be great.
I have family whom emigrated to Cape Town many years ago, we visit or try to visit (currently due to covid have not for the last 4 years)
In 2004 we decided to take the plunge and buy a holiday home there. However in 2009 we decided to rent the property out to the local market through a management letting agency.

At the time we visited our local HMRC and advised that we have rented our property out in Cape town but no money will be brought back to the UK. The money raised over in Cape Town would pay the Bond (Mortgage) and other bills. The HMRC informed us that as we were paying local tax on the property in CT and nothing was being brought back to the UK then they were not interested. I now wish I had that in writing.

We have used some of the funds made by renting out the house when we visit CT. It pays for our Holiday over there but not in full. No funds are brought back to the UK on our return.        

We are now looking at possibly selling CT house,
We purchased the property at R500,000 of which 50% was on a bond and 50% transferred funds from the UK. 
The 50% transferred from UK was made up of savings and an extend loan on our UK mortgage (still paying back) .
The property is now valued at R1,900,000

Both my wife and myself are in full time work, My wife is on a low tax threshold, I'm on a high Tax threshold.

I really do not know if we sell Cape town and after cost ( Estate agents fees, solicitors fees, pay the rest of the bond, ect ) how we would bring the funds back to the UK and what tax we may need to pay the HMRC. The funds would allow us to pay our UK mortgage off and hopefully have some funds left over.  

Sorry the post is a little messy but thanks for any guidance given.
Keep safe 
     
                     
    

  

AdrianC

Daveblue1 said:

The HMRC informed us that as we were paying local tax on the property in CT and nothing was being brought back to the UK then they were not interested. I now wish I had that in writing.

And, as far as UK income tax is concerned, that's proved absolutely correct over the years.

We purchased the property at R500,000 of which 50% was on a bond and 50% transferred funds from the UK. 
The 50% transferred from UK was made up of savings and an extend loan on our UK mortgage (still paying back) .
The property is now valued at R1,900,000

Both my wife and myself are in full time work, My wife is on a low tax threshold, I'm on a high Tax threshold.

I really do not know if we sell Cape town and after cost ( Estate agents fees, solicitors fees, pay the rest of the bond, ect ) how we would bring the funds back to the UK and what tax we may need to pay the HMRC.

What you'll be liable to HMRC for now is Capital Gains Tax.
https://www.gov.uk/tax-sell-property/selling-overseas-property

The property has increased in value from R500k in 2004 to R1.9m now.
It's never been your primary residence, so no relief.

If we work on 11.8ZAR to the pound in 2004 (from XE's historic rates, 1st June 2004) and 20ZAR now, then it's increased in value from £42.4k to £190k now - so a capital gain of £147.6k.
Purchase and sale costs can be offset against that, but we'll ignore them for now.
The mortgage is simply leverage on the asset, and makes no difference.

Assuming an equal split of ownership:
You would pay 28% on your £73,800-£12,300 threshold = 28% of £61.5k = £17,200.
Your wife would pay 18% on her £61,500 = £11k
If there's a ZA CGT-equivalent bill, then that could be offset against the UK.

Effectively, your total bill is whichever country has the higher rate.

£28k tax bill for a £150k gain isn't bad, is it? You keep £122k of it.

Daveblue1

Hello AdrianC
Thank you so much on the reply. Most of it makes sense and gives me a better way forward.
Just one part may be incorrect on the below: 
'If we work on 11.8ZAR to the pound in 2004 (from XE's historic rates, 1st June 2004) and 20ZAR now, then it's increased in value from £42.4k to £190k now - so a capital gain of £147.6k.' 

The value of the original price is correct £42.4k however the current value would be £95k (1.9m /R20 to £1)  not the £190k. Is that correct or am I reading this wrong.

Thanks again 
Keep safe 
 
  
   

AdrianC

D'oh - you are of course correct.

So there'd be almost no tax to pay.

£95k-£42.4k = £52.6k divided by two = £26,300 each. Less the £12,300 allowance = £14k taxable.
£2,520 for your wife, £3,920 for you.
Total CGT bill = £6,440.

Daveblue1

Hello All 
So we are starting with the sell of the CT home. 
This is mainly due to me getting made redundant in the next month or so. Unfortunately no redundancy money as I only work there from 1year and 6 months. 
I'm lucky we still have the place in CT to sell.

Has any of the rules changed with the HMRC ? or is the above still the same ?

Thanks again and keep safe 

brianposter

AdrianC said:

D'oh - you are of course correct.

So there'd be almost no tax to pay.

£95k-£42.4k = £52.6k divided by two = £26,300 each. Less the £12,300 allowance = £14k taxable.
£2,520 for your wife, £3,920 for you.
Total CGT bill = £6,440.

This appears to me to be wrong and the original calculation correct.

SusieT

You may be better talking to a tax advisor who knows both the tax situation in SA and the double taxation agreement between UK and SA, it does have provision for capital gains. Basically if you pay capital gains in SA on the increase in value, then the property will either not ne taxed again in UK, or the tax paid in SA will be deducted from what is owed in UK. I am NOT a tax expert and only have a vague idea of how it works, so speak to someone who works with tax, or pop a post about capital gains and double taxation on the tax forum to see if someone there can give you better information on how it works!  The people you call at HMRC are unlikely to be trained in double taxation treaties.

SeanG79

brianposter said:

AdrianC said:

D'oh - you are of course correct.

So there'd be almost no tax to pay.

£95k-£42.4k = £52.6k divided by two = £26,300 each. Less the £12,300 allowance = £14k taxable.
£2,520 for your wife, £3,920 for you.
Total CGT bill = £6,440.

This appears to me to be wrong and the original calculation correct.

The exchange rate in the first calculation is incorrect.

Also, there will be Capital Gains tax to pay in SA and that will likely offset most, if not all of your UK Tax liability. Capital Gains Tax in SA is 18% on residential property and for Basic Tax Payer in UK it is also 18% for residential property (28% for Higher Rate Tax Payers)

edit: as mentioned above there is a Double Tax Treaty between UK and SA. So you will only have a UK tax liability if you are a UK Higher Rate Tax Payer and the liability will in that case be 10% of the Capital Gain 

macman

You also need to check what the limitations/taxation  are on exporting your capital from SA, if any

GDB2222

brianposter said:

AdrianC said:

D'oh - you are of course correct.

So there'd be almost no tax to pay.

£95k-£42.4k = £52.6k divided by two = £26,300 each. Less the £12,300 allowance = £14k taxable.
£2,520 for your wife, £3,920 for you.
Total CGT bill = £6,440.

This appears to me to be wrong and the original calculation correct.

Why? It looks okay to me.

 You can check the exchange rates here
https://exchangerates.org/gbp/zar/in-2004

GDB2222

Won’t tax in SA be based on the full increase in value in rands, ie R1.4m? 

I have no idea whether there are any personal allowances, etc, but at say 18% which was mentioned, the tax could be around R250000, ie £12000. 

Under a DTA, if there is one, you are unlikely to have to pay UK tax on top of that figure. 

Really, the starting point is to find out what the SA tax position is. Hopefully, a SA based tax advisor can help, and maybe your relatives can suggest one. 

Once you know the SA tax, it may be obvious that it dwarfs the UK tax.