UK/France CGT Agreement?

[Deleted User]

4th September 2021

Good morning

Thank you for taking the time to read this.  I am asking the following question on behalf of an elderly person who resides (and has always done so) in the United Kingdom but has a one third share in a property in France and has never lived in the property. In 2005 his sole remaining parent passed away and left the property to their three children. One remained in it as their (previous and current) residence. One living elsewhere in France and this gentleman living over here. At the time (2005) French Taxes were paid but the property was not sold and now, due to all three children approaching their 80’s, the resident sibling has decided to sell. I’m trying to establish for this gentleman if he will have to pay CGT twice post Brexit and if when using the Government website CGT calculator, he should use the original purchase price from 1985 (when his parents bought the property) or the Determined value when his parent(s) died in 2005 as the ‘Capital Gain’ difference to charge tax on? 

Question 1. Can someone tell me if (as of today 4/9/21) there is still in place an agreement between the United Kingdom and France to ‘offset’ Capital Gains Tax paid in one country (country of Property - France) against the Capital Gains Tax that has to be paid in the Country of Residence (United Kingdom) when a property is sold. Has this agreement disappeared post Brexit or is it still in place? 

Question 2. 

What date should the ‘Capital Gain’ be calculated from? The original purchase date by his parents in 1985 or the determined value date in 2005 when his parent died and the three children inherited the property and paid taxes at that time (Inheritance tax 2005) to the French Government? 

Question 3. For the purposes of ‘Taxable Income’ and ‘Do you pay Tax?’ how does someone on Disability Benefits answer these specific questions? Is their income (from benefits arriving in their bank account) defined as taxed or not taxed? When ticking the box in a charity shop so the charity can claim back more money through ‘gift aid’, would the person donating or buying tick the box saying “I pay tax” in this scenario or not tick it? 

Question 4. Does ‘Personal Allowance’ play any relevance to a person on Benefits for the purpose of UK Capital Gains Tax.

Apologies for the long email but I find its best to be detailed and as accurate as possible to avoid vague and distracting answers and several countering questions. 

Thank you for you replies…

Keep_pedalling

I. As far as I know Brexit has not changed the tax agreements between France and the UK so the French CGT payed will reduce or or more likely eliminate UK CGT.

2. The capital gain will be calculated from the date of inheritance. 

3. Capital gain is not income, and cannot be used for gift aid.

4. No, but you get a separate annual CG allowance of £12,300. This won’t actually help you as it will be French CGT you will be paying which has no such allowance.

Jeremy535897

1. Brexit is irrelevant, but the double tax agreement is in standard form, allowing both France and the UK to tax the gain. UK will give credit (up to the UK liability on the gain) for the French tax paid.
2.As above, but you will need to translate the euro amount to sterling both at 2005 and the date of sale.
3. UK capital gains tax paid does count as tax paid for gift aid. See https://www.litrg.org.uk/tax-guides/savers-property-owners-and-other-tax-issues/giving-charity#toc-can-i-use-gift-aid-if-i-don-t-pay-any-or-not-much-tax-
4.If the French tax is higher than the UK capital gains tax, then as above the annual exemption won't help.

[Deleted User]

Good Morning Jeremy535897.

Thanks for the reply. That’s Good news. In your point 1. You say “The UK will give a credit (up to the ‘UK Liability’ on the gain) for the French paid tax”.  I understand the first part of this to mean what is paid in France can be offset or deducted from what would be owed in the UK? Is that correct? I don’t understand the “up to the UK liability on the Gain” part. Thank you for points 2,3 & 4. To keep things simple… if €20,000 Euros was owed in French CGT and £20,000 pounds owed in UK CGT the French amount would be converted at that dates exchange rate and then deducted from the UK owed CGT. Is that correct? I just don’t understand the “up to the UK liability on the Gain” bit. Apologies for my lack of knowledge and understanding.

Jeremy535897

What it means is that if the sterling equivalent of the French tax on the gain is say £18,000, and the UK capital gains tax on the gain is £10,000, and other UK tax is £2,000, you will pay £18,000 in France and nothing in the UK on the gain, but won't get any offset against the other UK tax of £2,000. However, if the UK capital gains tax on the gain is £20,000, you deduct the £18,000 French tax paid on the gain from the £20,000, and pay £2,000 in the UK.

There are exchange rates for tax here:
https://www.gov.uk/government/publications/exchange-rates-for-customs-and-vat-yearly

[Deleted User]

Ok that’s all makes sense is clear in my understand except….What is this ‘other’ UK Tax for £2000 (as an example)  you are talking of?

Thank you for the exchange rate tax link…

[Deleted User]

Deleted_User said:

Ok that’s all makes sense is clear in my understand except….What is this ‘other’ UK Tax for £2000 (as an example)  you are talking of?

Thank you for the exchange rate tax link…

Never wishing to speak for Jeremy but I believe that he means  any other tax paid in the U.K. in that year.

It is a common misapprehension that, using Jeremy’s example, so long as £18000 tax was paid in the U.K. , one could claim the full tax credit of £18000. As he has said, one can only claim up to the amount of U.K. tax due on THAT sale.

[Deleted User]

Good morning PurdyOaten2

Ok I see. Yes that makes perfect sense. Thank you for the clarification.

Jeremy535897

Yes, that is exactly the point.