Capital Gains Tax on foreign rental property

Jeremy535897

purdyoaten2 said:

Jeremy535897 said:

The situation is potentially rather more complex than suggested. The first task is to establish the sterling equivalent of the pesetas that the house cost when it was bought. At least half of the base cost will be based on this figure. Sterling equivalents of the costs of purchase, and any enhancements reflected in the value of the property at the date of sale, will need to be established too.

The next step is to establish whether the disposal by his ex-wife of her share of the property was a no gain no loss transaction, or whether it was treated as being at market value at the time. This will determine whether the acquisition cost is simply the sterling equivalent of the price paid when it was bought, or whether half of it is based on that figure, and half on the sterling market value in 2015.

The UK-Spain double tax agreement will allow a deduction of Spanish tax from the UK tax liability, but cannot result in a refund. Box 51 of SA108 is where to enter foreign tax credits.

SA 108 should not be used for claiming foreign tax credit. Instead complete SA 106 and declare foreign tax paid and foreign tax credit inboxes 37 and 39 respectively.

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1148476/SA106_2023.pdf

I must admit I have no practical experience of this, but the notes to SA108 do mention that you can use box 51:
"Box 51 Adjustments to Capital Gains Tax If the adjustment is intended to reduce the amount of Capital Gains Tax payable, put a minus sign in the shaded box in front of your figure. You may need to put a net adjustment in box 51 if: • your capital gain has Foreign Tax Credit Relief..."  But SA106 also seems to include it.

Jeremy535897

El_Torro said:

Jeremy535897 said:

The situation is potentially rather more complex than suggested. The first task is to establish the sterling equivalent of the pesetas that the house cost when it was bought. At least half of the base cost will be based on this figure. Sterling equivalents of the costs of purchase, and any enhancements reflected in the value of the property at the date of sale, will need to be established too.

The next step is to establish whether the disposal by his ex-wife of her share of the property was a no gain no loss transaction, or whether it was treated as being at market value at the time. This will determine whether the acquisition cost is simply the sterling equivalent of the price paid when it was bought, or whether half of it is based on that figure, and half on the sterling market value in 2015.

The UK-Spain double tax agreement will allow a deduction of Spanish tax from the UK tax liability, but cannot result in a refund. Box 51 of SA108 is where to enter foreign tax credits.

Good point on the initial value of the property. The GBP was a lot stronger against the peseta / Euro in 1989 than it is now so that should be taken into account. 

As for the divorce, they split their assets 50/50. The market value of the property was calculated in 2015 (I don't have that figure to hand but we do have that figure) and that figure was used as part of his 50% of the assets. 

One more question: Does the fact that the property was not rented out for a significant period of time relevant? Especially since his parents lived there rent free for roughly 13 years. Or is this information irrelevant?

purdyoaten2 said:

Dazed_and_C0nfused said:

The UK-Spain double tax agreement will allow a deduction of Spanish tax from the UK tax liability, but cannot result in a refund. Box 51 of SA108 is where to enter foreign tax credits.

And they will presumably need removing from any eligible expenses??

That 25K Euros is part of the 84K in expenses. 

Yes - it seems that the U.K. Capital gains section was completed and foreign tax paid claimed as an expense. 

As Jeremy has outlined, this is not a straightforward return. 

Yes, this is correct. I now have a pdf copy of the self assessment (not submitted to HMRC yet) and we did fill it in that way. We didn't declare the foreign tax in the correct section. 

The renting out and parents living rent free is not relevant. The question regarding 2015 is not whether a value was calculated for the divorce, but rather whether the disposal was a no gain no loss transaction, or one at market value. That will depend on when the transfer happened. See:
https://www.gov.uk/government/publications/husband-and-wife-civil-partners-divorce-dissolution-and-separation-hs281-self-assessment-helpsheet/hs281-capital-gains-tax-civil-partners-and-spouses-2021

El_Torro

Jeremy535897 said:

El_Torro said:

Jeremy535897 said:

The situation is potentially rather more complex than suggested. The first task is to establish the sterling equivalent of the pesetas that the house cost when it was bought. At least half of the base cost will be based on this figure. Sterling equivalents of the costs of purchase, and any enhancements reflected in the value of the property at the date of sale, will need to be established too.

The next step is to establish whether the disposal by his ex-wife of her share of the property was a no gain no loss transaction, or whether it was treated as being at market value at the time. This will determine whether the acquisition cost is simply the sterling equivalent of the price paid when it was bought, or whether half of it is based on that figure, and half on the sterling market value in 2015.

The UK-Spain double tax agreement will allow a deduction of Spanish tax from the UK tax liability, but cannot result in a refund. Box 51 of SA108 is where to enter foreign tax credits.

Good point on the initial value of the property. The GBP was a lot stronger against the peseta / Euro in 1989 than it is now so that should be taken into account. 

As for the divorce, they split their assets 50/50. The market value of the property was calculated in 2015 (I don't have that figure to hand but we do have that figure) and that figure was used as part of his 50% of the assets. 

One more question: Does the fact that the property was not rented out for a significant period of time relevant? Especially since his parents lived there rent free for roughly 13 years. Or is this information irrelevant?

purdyoaten2 said:

Dazed_and_C0nfused said:

The UK-Spain double tax agreement will allow a deduction of Spanish tax from the UK tax liability, but cannot result in a refund. Box 51 of SA108 is where to enter foreign tax credits.

And they will presumably need removing from any eligible expenses??

That 25K Euros is part of the 84K in expenses. 

Yes - it seems that the U.K. Capital gains section was completed and foreign tax paid claimed as an expense. 

As Jeremy has outlined, this is not a straightforward return. 

Yes, this is correct. I now have a pdf copy of the self assessment (not submitted to HMRC yet) and we did fill it in that way. We didn't declare the foreign tax in the correct section. 

The renting out and parents living rent free is not relevant. The question regarding 2015 is not whether a value was calculated for the divorce, but rather whether the disposal was a no gain no loss transaction, or one at market value. That will depend on when the transfer happened. See:
https://www.gov.uk/government/publications/husband-and-wife-civil-partners-divorce-dissolution-and-separation-hs281-self-assessment-helpsheet/hs281-capital-gains-tax-civil-partners-and-spouses-2021

Since the details of when the property was rented out are not relevant that makes this a lot easier than I thought. As has been mentioned in this thread we just have to get the basics right. 

As for the disposal, they were separated for a few years before the divorce so I guess technically speaking it shouldn't have been a no gain no loss transaction. However neither party paid any CGT on the transfer. What does this mean? Is his wife liable for some of the CGT? 

Once we have the correct calculations for the exchange rates involved and put the right calculations in the right fields on the self assessment form it sounds like there's not much else to consider.

[Deleted User]

Jeremy535897 said:

purdyoaten2 said:

Jeremy535897 said:

The situation is potentially rather more complex than suggested. The first task is to establish the sterling equivalent of the pesetas that the house cost when it was bought. At least half of the base cost will be based on this figure. Sterling equivalents of the costs of purchase, and any enhancements reflected in the value of the property at the date of sale, will need to be established too.

The next step is to establish whether the disposal by his ex-wife of her share of the property was a no gain no loss transaction, or whether it was treated as being at market value at the time. This will determine whether the acquisition cost is simply the sterling equivalent of the price paid when it was bought, or whether half of it is based on that figure, and half on the sterling market value in 2015.

The UK-Spain double tax agreement will allow a deduction of Spanish tax from the UK tax liability, but cannot result in a refund. Box 51 of SA108 is where to enter foreign tax credits.

SA 108 should not be used for claiming foreign tax credit. Instead complete SA 106 and declare foreign tax paid and foreign tax credit inboxes 37 and 39 respectively.

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1148476/SA106_2023.pdf

I must admit I have no practical experience of this, but the notes to SA108 do mention that you can use box 51:
"Box 51 Adjustments to Capital Gains Tax If the adjustment is intended to reduce the amount of Capital Gains Tax payable, put a minus sign in the shaded box in front of your figure. You may need to put a net adjustment in box 51 if: • your capital gain has Foreign Tax Credit Relief..."  But SA106 also seems to include it.

That is very confusing I will admit. The notes to the foreign pages state:

Capital gains – Foreign Tax Credit Relief and Special Withholding Tax

Boxes 33 to 40

If you’ve paid tax in a foreign country on a gain and you want to claim FTCR, fill in box 33 and boxes 37 to 40 (in UK pounds) as appropriate. Do not fill in boxes 34 to 36.

Jeremy535897

[Deleted User] said:

Jeremy535897 said:

purdyoaten2 said:

Jeremy535897 said:

The situation is potentially rather more complex than suggested. The first task is to establish the sterling equivalent of the pesetas that the house cost when it was bought. At least half of the base cost will be based on this figure. Sterling equivalents of the costs of purchase, and any enhancements reflected in the value of the property at the date of sale, will need to be established too.

The next step is to establish whether the disposal by his ex-wife of her share of the property was a no gain no loss transaction, or whether it was treated as being at market value at the time. This will determine whether the acquisition cost is simply the sterling equivalent of the price paid when it was bought, or whether half of it is based on that figure, and half on the sterling market value in 2015.

The UK-Spain double tax agreement will allow a deduction of Spanish tax from the UK tax liability, but cannot result in a refund. Box 51 of SA108 is where to enter foreign tax credits.

SA 108 should not be used for claiming foreign tax credit. Instead complete SA 106 and declare foreign tax paid and foreign tax credit inboxes 37 and 39 respectively.

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1148476/SA106_2023.pdf

I must admit I have no practical experience of this, but the notes to SA108 do mention that you can use box 51:
"Box 51 Adjustments to Capital Gains Tax If the adjustment is intended to reduce the amount of Capital Gains Tax payable, put a minus sign in the shaded box in front of your figure. You may need to put a net adjustment in box 51 if: • your capital gain has Foreign Tax Credit Relief..."  But SA106 also seems to include it.

That is very confusing I will admit. The notes to the foreign pages state:

Capital gains – Foreign Tax Credit Relief and Special Withholding Tax

Boxes 33 to 40

If you’ve paid tax in a foreign country on a gain and you want to claim FTCR, fill in box 33 and boxes 37 to 40 (in UK pounds) as appropriate. Do not fill in boxes 34 to 36.

The other odd thing is that SA106 has nowhere to record conventional capital gains, so why put the tax credit on SA108 gains on SA106? The only gains to report on SA106 are gains treated as income (like gains on offshore funds).

[Deleted User]

Jeremy535897 said:

purdyoaten2 said:

Jeremy535897 said:

purdyoaten2 said:

Jeremy535897 said:

The situation is potentially rather more complex than suggested. The first task is to establish the sterling equivalent of the pesetas that the house cost when it was bought. At least half of the base cost will be based on this figure. Sterling equivalents of the costs of purchase, and any enhancements reflected in the value of the property at the date of sale, will need to be established too.

The next step is to establish whether the disposal by his ex-wife of her share of the property was a no gain no loss transaction, or whether it was treated as being at market value at the time. This will determine whether the acquisition cost is simply the sterling equivalent of the price paid when it was bought, or whether half of it is based on that figure, and half on the sterling market value in 2015.

The UK-Spain double tax agreement will allow a deduction of Spanish tax from the UK tax liability, but cannot result in a refund. Box 51 of SA108 is where to enter foreign tax credits.

SA 108 should not be used for claiming foreign tax credit. Instead complete SA 106 and declare foreign tax paid and foreign tax credit inboxes 37 and 39 respectively.

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1148476/SA106_2023.pdf

I must admit I have no practical experience of this, but the notes to SA108 do mention that you can use box 51:
"Box 51 Adjustments to Capital Gains Tax If the adjustment is intended to reduce the amount of Capital Gains Tax payable, put a minus sign in the shaded box in front of your figure. You may need to put a net adjustment in box 51 if: • your capital gain has Foreign Tax Credit Relief..."  But SA106 also seems to include it.

That is very confusing I will admit. The notes to the foreign pages state:

Capital gains – Foreign Tax Credit Relief and Special Withholding Tax

Boxes 33 to 40

If you’ve paid tax in a foreign country on a gain and you want to claim FTCR, fill in box 33 and boxes 37 to 40 (in UK pounds) as appropriate. Do not fill in boxes 34 to 36.

The other odd thing is that SA106 has nowhere to record conventional capital gains, so why put the tax credit on SA108 gains on SA106? The only gains to report on SA106 are gains treated as income (like gains on offshore funds).

https://community.hmrc.gov.uk/customerforums/sa/b8b691b5-f2f1-ec11-b5cf-00155d3bb152

Jeremy535897

Clear as mud!

[Deleted User]

Jeremy535897 said:

Clear as mud!

Have to agree. The foreign section has changed - there used to be a section where foreign capital gains where declared - now there isn’t! I really don’t see the point of completing the foreign section simply to claim Foreign tax credit, particularly as there seems to be an option to include on the capital gains pages!