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  • FIRST POST
    • Continental
    • By Continental 10th Nov 18, 12:57 AM
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    Continental
    Capital Gains Tax: Moving Back Into Our Former Home
    • #1
    • 10th Nov 18, 12:57 AM
    Capital Gains Tax: Moving Back Into Our Former Home 10th Nov 18 at 12:57 AM
    We have been living overseas (not EU) for two decades as spouse has been on expat contracts and canít find any more employment.

    We are returning to live permanently in England next Spring and will need to move back into our house which has been rented out; we have no UK credit rating as far as Iím aware and we need to register on the electoral roll, change back to GB driving licences, register with doctors etc.

    We originally bought the house as newly-weds and as it is absolutely tiny we donít want to regard it as our Ďforeverí home and plan to eventually move out of the area to another less expensive part of England (the house is just outside the M25).

    Does anyone know how long we would need to live in the house again before selling it and not having to pay Capital Gains Tax? Is the April-April tax years relevant? Is it likely to be a few years or maybe 12 to 18 months?
Page 1
    • Slithery
    • By Slithery 10th Nov 18, 1:21 AM
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    Slithery
    • #2
    • 10th Nov 18, 1:21 AM
    • #2
    • 10th Nov 18, 1:21 AM
    When was it purchased and for how much?
    When will you sell it and for how much?
    For which period(s) were you resident at the property?

    Without all of the details none of us can even begin the relevant calculations.
    • p00hsticks
    • By p00hsticks 10th Nov 18, 1:22 AM
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    p00hsticks
    • #3
    • 10th Nov 18, 1:22 AM
    • #3
    • 10th Nov 18, 1:22 AM
    It doesn't work like that - basically you are potentially liable to CGT for the months you're not living in it and not for the months you are, whether you move back in or not.

    If you have been letting the property, lettings relief is available for that period, and you also currently get relief for the last 18 months before you sell, whether you are living in it or not.

    There are CGT calculators around on the web - you need to know the month and year you purchased the property, when you moved out, when you move back in and and when you sell it.

    https://www.gov.uk/tax-sell-home/let-out-part-of-home
    • silvercar
    • By silvercar 10th Nov 18, 7:27 AM
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    silvercar
    • #4
    • 10th Nov 18, 7:27 AM
    • #4
    • 10th Nov 18, 7:27 AM
    The government has announced the removal of letting relief in 2020, so you need to factor that into your calculations.
    • p00hsticks
    • By p00hsticks 10th Nov 18, 8:30 AM
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    p00hsticks
    • #5
    • 10th Nov 18, 8:30 AM
    • #5
    • 10th Nov 18, 8:30 AM
    The government has announced the removal of letting relief in 2020, so you need to factor that into your calculations.
    Originally posted by silvercar

    Yes, that had slipped my mind - haven't they also talked about reducing the pre-sale exemption period from 18 to 9 months ?

    OP - with your property let for such a long period, it may be worth you doing the CTG calculations with and without lettings relief as there may well be less CTG payable now than in a couple of years time....
    • 00ec25
    • By 00ec25 10th Nov 18, 9:36 AM
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    00ec25
    • #6
    • 10th Nov 18, 9:36 AM
    • #6
    • 10th Nov 18, 9:36 AM
    key points of your position:
    1. you are liable for CGT for the entire time you have owned it + the final 18 months of ownership if those does not overlap with you actually living there
    2. you get relief from CGT for only the period you actually lived in it as your actual main/only home
    3. your absence abroad for 20 years appears to have been an economic choice you made to get better paid work overseas rather than because your employer for the last 20 years gave you no choice but to move overseas. Therefore you cannot claim under the work related absence rules
    4. the property was let, appears to have initially been your main home after marriage, therefore you can (for now) claim letting relief
    5. selling whilst living there does not make the whole thing CGT exempt. You are automatically given the final 18 months of ownership as tax relief whether you live there or not. So moving back and selling achieves no extra benefit

    if you sell (ie exchange contracts to sell) before 6 April 2020
    you can work out how much tax each of you will pay individually (each each own a share of the property?) here:

    https://forums.moneysavingexpert.com/showpost.php?p=73621764&postcount=2

    if you sell after 6 April 2020

    1) you cannot claim any letting relief at all
    2) the final period exemption add on is reduced to 9 months , not 18
    • pjcox2005
    • By pjcox2005 10th Nov 18, 12:10 PM
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    pjcox2005
    • #7
    • 10th Nov 18, 12:10 PM
    • #7
    • 10th Nov 18, 12:10 PM
    It’s not my area, but I would suggest getting specialist advice particularly if the gain is significant.

    Given your absence from the U.K. for the last 20 years then I believe there is a good chance that you’re not currently a uk tax resident so if you sold now you’d only be taxed on the capital gain arising since 6 April 2015 rather than the date of acquisition. This could either be on an apportionment basis for the overall gain or working out the value at 6 April 2015.

    Whereas if you come back and live in it, becoming a uk tax resident then the points from posters above apply and you could have a significant tax bill given property gains over the last 20years. I don’t believe those points currently apply though to your circumstances but I could be wrong.

    https://www.gov.uk/guidance/capital-gains-tax-for-non-residents-uk-residential-property Has a calculator for non-resident gains, but should link you through to the definitions of a non uk tax resident.

    As you allude to ideally selling before 6 April, but I believe also before you’re return to the UK which you may need to delay until after that date, could be very beneficial for you. Sounds like you were planning around then anyway.

    So to summarise, if you think it’s a large gain then definitely get tax advice before you come home otherwise you could have a large tax bill you didn’t need to have.
    Last edited by pjcox2005; 10-11-2018 at 5:15 PM.
    • Continental
    • By Continental 10th Nov 18, 6:21 PM
    • 4 Posts
    • 10 Thanks
    Continental
    • #8
    • 10th Nov 18, 6:21 PM
    • #8
    • 10th Nov 18, 6:21 PM
    Thank you for your replies....it sounds complicated to me!

    For those who asked, we purchased the house in December 1987 for 73,000 pounds. We relocated overseas in January 1995 and have lived in 3 other countries (but now in the US and my spouse’s visa is tied to his job....this ends on 31st December and he must leave the States within 60 days.

    I understand that the house would probably go on the market for approx 350,000 pounds and bar a couple of void periods where tenants didn’t pay and did a moonlight flit, has had tenants in for almost 24 years. We need to get the current tenants out first - it is now on a periodic tenancy - but they’ve been there for a decade and I know they really want a council house so I fear they may be resistant to moving out.

    I have heard that some expats stay out of the UK for residency reasons until the new tax year in April...however we have to sell a house here in the US (not easy over the Winter) and ship our stuff to the UK, so timing could be difficult.

    The UK house is in both names and I think my spouse would be deemed a 40% tax payer once resident in the UK. If he can’t find a job in the London area we will move out to the south west or Midlands.
    • pjcox2005
    • By pjcox2005 10th Nov 18, 7:37 PM
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    pjcox2005
    • #9
    • 10th Nov 18, 7:37 PM
    • #9
    • 10th Nov 18, 7:37 PM
    Ok, this is very high level, I can't reiterate enough that you need professional tax advice.


    First example, if you are classed as a UK tax residence e.g. moved home before sale or are still classed as UK tax residence due to how often you are in the country.


    Gain on property is £350,000 minus £73,000 equals £277,000. (You can offset any costs of buying, selling (e.g. legal fees, estate agent costs) and capital improvements as well).


    You are then looking to see how much of that gain is exempt due to principal private residence relief.


    You've owned the house for 372 months.


    You lived in it as you principal private residence for the first 8 years/97 months so that proportion of gain is exempt.


    The last 18 months before sale qualifies no matter what, so those 18 months are exempt


    So the amount of the gain exempt is (97+18)/372 * 277,000 = 85,631


    You then get letting relief which is the lowest of the following:
    • the same amount you got in Private Residence Relief
    • £40,000
    • the same amount as the chargeable gain you made from letting your home
    For you that will be £40,000 which gets deducted.


    So your revised chargeable gain is £277,000 - £85,631 - £40,000 = £151,368


    You each get a personal exemption of £11,700 in this tax year so remove 2 * £11,700 leaving the taxable gain at £127,968.


    I'm assuming you're high rate taxpayers so the tax liability at 28% would be £35,831.


    (That is a rough estimate only)
    • pjcox2005
    • By pjcox2005 10th Nov 18, 7:41 PM
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    pjcox2005
    If you do qualify as non-UK tax resident (e.g. selling your UK property before you return)


    Then same as before for the first part:


    Gain on property is £350,000 minus £73,000 equals £277,000. (You can offset any costs of buying, selling (e.g. legal fees, estate agent costs) and capital improvements as well).


    But for Non-UK resident you'd only look at the gain since 6 April 2015. So assuming Dec 18 sale, that's the last 44 months of ownership.


    So 44/372 * £277,000 = £32,763


    You still both get your CGT annual exemptions of £11,700 reducing the chargeable gain to £9,363. (Not sure if you get PPR as a non-UK tax resident, I think you can but only if you live in it during each year, which could potentially remove the final 18 months)


    Tax at 28% equals £2,621 tax liability.


    The difference between £35,831 (from first example) and £2,621 is £33,209. So I think you could save this amount if you sold it whilst still being a non-UK tax resident.
    Last edited by pjcox2005; 10-11-2018 at 7:49 PM.
    • pjcox2005
    • By pjcox2005 10th Nov 18, 7:44 PM
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    pjcox2005
    Again, this is not my area so grateful if anyone can correct me on these points or tell me I'm missing something fundamental.


    This is a link to residence as a first step for you to consider:


    https://www.gov.uk/tax-foreign-income/residence


    If it works out that's right (again definitely check!) and you decide to sell before moving back, then feel free to name your pet dog/cat/hamster after me ;-)
    • 00ec25
    • By 00ec25 10th Nov 18, 7:46 PM
    • 7,229 Posts
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    00ec25
    You then get letting relief which is the lowest of the following:
    For you that will be £40,000 which gets deducted.

    So your revised chargeable gain is £277,000 - £85,631 - £40,000 = £151,368 -40,000 = 111,368

    You each get a personal exemption of £11,700 in this tax year so remove 2 * £11,700 leaving the taxable gain at £127,968. £87,968

    I'm assuming you're high rate taxpayers so the tax liability at 28% would be £35,831.
    Originally posted by pjcox2005
    CGT is calculated for each owner individually, based on their respective share.

    Therefore people often forget when doing consolidated calculations that you deduct 80,000, since there are two owners.


    OP also states husband would be higher rate taxpayer, but has not given any info on her own tax status, so a portion of her liability may still fall into the 18% band since (assuming 50/50 joint ownership) her liability would be 43,984 all of which could, potentially, be in the 18% bracket since the 28% band starts at 46,350
    Last edited by 00ec25; 10-11-2018 at 7:53 PM.
    • 00ec25
    • By 00ec25 10th Nov 18, 8:06 PM
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    00ec25
    But for Non-UK resident you'd only look at the gain since 6 April 2015. So assuming Dec 18 sale, that's the last 44 months of ownership.

    So 44/372 * £277,000 = £32,763
    Originally posted by pjcox2005
    yes, but that is not the default method.

    The default is to be taxed only on the gain since 6 April 2015 - obviously that needs a (professional) robust valuation of the property at that date which will stand HMRC checking

    you have to positively elect to be taxed as you have shown on the time apportioned basis over the whole ownership period.

    Even then there is a 3rd method available if you elect for that instead:
    the whole gain is time apportioned as you suggest, but then, using a count in exact days to time apportion the gain between pre and post 6/4/15, and only the portion of the gain since 6/4/15 is taxed.

    The default "should" be the cheapest method for a property which is subject to long ownership and short PRR. Then method 3 as that avoids having to pay for a valuation should be next. Your method should (in theory) be the least tax efficient method given the property has made a gain over a relatively long period pre 2015.
    Last edited by 00ec25; 10-11-2018 at 8:25 PM.
    • pjcox2005
    • By pjcox2005 10th Nov 18, 8:19 PM
    • 580 Posts
    • 625 Thanks
    pjcox2005
    CGT is calculated for each owner individually, based on their respective share.

    Therefore people often forget when doing consolidated calculations that you deduct 80,000, since there are two owners.


    OP also states husband would be higher rate taxpayer, but has not given any info on her own tax status, so a portion of her liability may still fall into the 18% band since (assuming 50/50 joint ownership) her liability would be 43,984 all of which could, potentially, be in the 18% bracket since the 28% band starts at 46,350
    Originally posted by 00ec25


    Good point, I hadn't really thought about that on the £40k lettings relief.


    Agreed on 18%, as stated I was just doing high level assumptions.
    • 00ec25
    • By 00ec25 10th Nov 18, 8:19 PM
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    00ec25
    Again, this is not my area so grateful if anyone can correct me on these points or tell me I'm missing something fundamental.


    This is a link to residence as a first step for you to consider:


    https://www.gov.uk/tax-foreign-income/residence


    If it works out that's right (again definitely check!) and you decide to sell before moving back, then feel free to name your pet dog/cat/hamster after me ;-)
    Originally posted by pjcox2005
    and don't forget that if OP's husband fails to get a job before April he could be taxed on the split year basis and have his CGT at the 18% rate as he would not be a higher rate taxpayer.

    as you say, the best advice would be to pay for tax advice
    Last edited by 00ec25; 10-11-2018 at 8:26 PM.
    • pjcox2005
    • By pjcox2005 10th Nov 18, 8:21 PM
    • 580 Posts
    • 625 Thanks
    pjcox2005
    yes, but that is not the default method.

    The default is to be taxed only on the gain since 6 April 2015 - obviously that needs a (professional) robust valuation of the property at that date which will stand HMRC checking

    you have to positively elect to be taxed as you have shown on the time apportioned basis over the whole ownership period.

    Even then there is a 3rd method available if you elect for that instead:
    the whole gain is time apportioned as you suggest, but then, using a count in exact days to time apportion the gain between pre and post 6/4/15, and only the portion of the gain since 6/4/15 is taxed.

    The default "should" be the cheapest method for a property which is subject to long ownership and short PRR. Then method 3 as that avoids having to pay for a valuation should be next. Your method should (in theory) be the least tax efficient method given the property has made a gain.
    Originally posted by 00ec25


    That makes sense, the calculation was very much high level to reiterate this is something that the OP needs to take advice on before they return home as it is material numbers. Something that seemed to be missing in the initial responses which just skipped to PPR and the CGT calculation.


    So one last time, definitely get proper advice on this OP
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