Default Property Sale - CGT - Non resident Tax Payer

[ChloeRadshaw]

This thread will try to understand better the rules around property disposal for non UK tax payers.

Background:
Property bought in 2006 for 240K - Now worth 500K. I am non tax resident in the UK and this has always been a BTL rented out

Problem
I have 260K CGT tax which I know I will have to pay at some point when I sell which at the moment would result in 28% of CGT = (260-10 tax free CGT allowance)*28% = 70K

Proposal
Sell property from personal name to SPV which I already have - Property has no mortgage so will only have to pay stamp duty which at the moment is 15K if buying in a company.

Dilema:
Should I pay 15K now to avoid paying 84K in future?

Reasoning
As I understand it if you are non uk tax resident and dispose of property any gains you made prior to april 2015 are tax free and only the increase in value from 2015 -> date of sale is chargeable for CGT purposes. This applies to sale of property that you own personally and also sale of shares in a property rich company

There is a five year temporary non tax resident rule to prevent someone leaving for one year selling their assets and then returning. I ve had a good read on the HMRC websites and in particular this

HS278 Temporary non-residents and Capital Gains Tax (2020) - GOV.UK

My question is whether anyone has done this personally themselves and even thought of whilst non tax resident moving property from personal to company name or other way round to lock in the CGT tax break whilst continuing to own it?

Secondly for this to actually be effective you need to be away for five years - My accountant is checking but does this mean that I can wait five years, sell the asset and then become uk tax resident straight away?? Or does it mean that asset needs to be sold and then a clear five years abroad is required?

[AndrewDod]

I know nothing at all about non-resident CGT but if this were the case it would be a total outrage..... unless there is a tax agreement with another country which means that you pay the tax elsewhere at whatever local rate (even if that is zero). But just to say foreign residents don't pay tax in the UK on income earned in the UK sounds not-good, especially while locals are getting well and truly stuffed.

Where do you live? I have lots of shares on US markets (and with US brokers) and I absolutely pay CGT on the gains. And lots of it.

[ChloeRadshaw]

I live in Switzerland and believe me the above is legal from hmrc point of view

switzerland does not charge cgt tax

I just need to check on the dates to plan this properly which is why I asked about five clear years or five elapsed years

[AndrewDod]

Yikes. In Australia there was even talk about removing the Own-House CGT exemption from foreigners. Only in the UK do we have the "hey lets screw us up because that is what we are -- a geographical doormat"

[royw]

We're a doormat for everything else so why not CGT too?

[ChloeRadshaw]

Let’s not get philosophical but rather concentrate on the rules which at the moment lead to an arbitrage where I can lock in cgt for an upfront payment of the stamp duty of 15k.

[Gordon999]

If you are currently living in switzerland, you are classed as non-resident for UK taxes and the property valuation at April 2015 is your starting point.

So roughly calculating the capital gain = £260 x 5 years ( since 2015) / 14 years ( since 2006 ) = £ 92K.

You can claim the £12,300 capital gains personal allowance, so you will have tax liability on £80K charged at 18% or 28%.

If you return to UK within 5 years of the property sale and become resident in UK, you may be asked to pay capital gains tax on the full £260K capital gain instead of £92K ( reduced for non-residents ).

[ChloeRadshaw]

Thank you Gordon very grateful

however This is not correct. The property was valued in 2015 at 500k. There has been no increase in gain since 2015 which means that the entire amount of 260k is available at no tax to pay.

if I return to the Uk within five years then yes I have to pay cgt on the 260k I agree.

but what is not clear is whether I have to be out of Uk for five clear years from date of sale or whether after five years you can sell for no tax and then move straight back. That was my point

[ChloeRadshaw]

Also worth pointing out that moving it to spv
will also reduce income tax on rental income because I already have more then 40k from Uk excluding this asset so am taxed at 40% or the rental income

so it looks like a 15k payment today locks in cgt gain but also reduces the income tax payable on rental income whilst it is held in my spv name

cant believe that accountants don’t actually proactively structure these kind of property disposals. There must be many people like me and I’m not sure all are working out the different scenarios in an excel spreadsheet

[Gordon999]

ChloeRadshaw,

You appear to be still resident in UK, and if you sell then , you will have liability to pay cgt on the full £260k.

You become "non-resident" after being away from UK for longer than one year and you register as a non-resident landlord. Less than one years absence , you are still resident for tax in UK.

After becoming non-resident , you qualify to dispose of the property and pay cgt on the capital gain calculated from valuation at April 2015.
If you return to live in UK within 5 years, you may be asked to pay capital gains on the full £260K capital gain.

https://www.gov.uk/tax-return-uk

However taking residence in the new country , the new country may have a tax net covering the sale and catch you for overseas cgt.

[ChloeRadshaw]

Is there a typo there Gordon where you say “you appear to be Uk tax resident”.

i am definitely not tax resident and have contract of employment and spend less than 90 days in Uk

i still would like to know if it is five years from date of disposal or five years elapsed time. For example can I wait five years sell and then return the day after??

[AndrewDod]

I do hate nonsense hypotheticals:

The above doesn't quite fit with your assertion elsewhere that you complete UK tax returns, and

on 20/9/20 your statement that " I m getting too old for this all and frankly want to move abroad"

Just pay your tax like everyone else on your 10 London properties, and avoid fancy manoeuvres.

[ChloeRadshaw]

Come on thats not fair - This is not hypothetical and you can see from the original post that much effort was put in to the question and research.

If you can help with this that would be hugely appreciated


i still would like to know if it is five years from date of disposal or five years elapsed time. For example can I wait five years sell and then return the day after??

[theartfullodger]

Visited Davos, Switzerland, some years ago, vintage re-enactment (no, nothing ww2): Weird, Davos had had 2 PoW camps in WW2, one Allies, t'other Fascists. Apparently they didn't get on.


Swiss always were expert at avoiding tax.

Artful: Father captured at Dunkirk, 4 years PoW.

[Gordon999]

No-one can say what the tax rates will be in 5 Years time.
The economy is suffering from covid-19 and tax rates will be higher in 3- 5 years .