CGT treatment of overseas home

[outtahere]

Hi all, I tried to find a similar thread to mine and while I found some interesting ones I could relate their problem fully to mine. I apologise if I am repeating other's questions.

I live in Dubai with my wife and have done for almost 10 years. We own a home in the UK (formerly our principal private residence) and one in Dubai which is our current residence.

We lived in the Dubai property for just over 2 years but did not nominate this as our principal private residence though we can provide proof that we have lived in it

If we choose to move back to the UK then we would potentialll have to pay CGT on both properties. I would like to calculate what that liability is.

I have worked out the CGT liability on the UK property as follows:

bought 01/09/1995 £180,000
occupied 01/09/1995
vacated 01/09/1999
rented from 01/09/1999
rented until 01/04/2010
sold 01/07/2010 £450,000
Gains £270,000

residence period 51
36 month rule 36
letting net of 36 m rule 91
ownership period 178

Residence relief £77,360
36 month rule £54,607
PPR relief £131,966
Letting relief £80,000

max letting relief £80,000
PPR relief £131,966
gain during letting £138,034

Lowest value of A,B,C £80,000

Total relief on property £211,966
CG allowance £20,200
net gain £37,834
tax 18%
CGT Paid £6,810
Percentage of gain 2.5%

As my wife is a joint owner then I believe we have a max of £80,000 relief. Is the formula identical except for the max letting relief figure?

If, after renting the Dubai property for a year or so while living in the UK we choose to sell it would I use the same formula?

I appreciate any help.

[TaxationPete]

You are on the right track but your dates and number do not add up . You lived there for 48 months plus 36 PPR then that is 84 not 91 Owner ship is 174.
As a result I have £7102. You also need to factor in all the acquistion and disposal legal and sales fees.
Capital Gains Summary

Purchase Price £180,000 01/09/1995
Legal Fees £0
Sale Price £450,000 01/04/2010
Enhancements £0
Legal Fees £0
Gross Gain £270,000
PPR Relief £130,345 £139,655
Letting Relief £80,000 £59,655
CG Allow'ce 2 £10,100 £39,455
CG Bill £7,102

If you are not resident and sold this before you come back then there would be No cgt. I do not think there is CGT in Dubai but the sale of the property whilst you are UK resident will treat this as a disposal of world wide asset and tax will apply in the same manor. However remember that the 36 months of PPR is treated as though you lived there so letting relief is void in that period. It did not shoe up in your calcuation as you had topped out at £40K each. However if you let the Dubai property, watch out for the changing rules on this, for say 2 yeras then sell, there would be no LR as it was all within the PPR 36 months. Regards Peter

[outtahere]

Hi and thank you for your reply. I see that the way I set out the calculation is misleading.

I had assumed that I would live in the property three months after the tenants move out and so that is how I got 51 months. I still managed to end up with one month more than you of total ownership. I will look into that.

I managed to get the same answer as you once I took one month of my total ownership calculations.

Please bear with me as I try to grasp the treatment of the Dubai property.

You are correct in that there is no CGT in Dubai so I do have the option of selling it now if I was really against paying any tax but as you have pointed out in earlier mails I would rather pay 18% than lose out on 82% of future growth.

If, as a non resident, I now notify HMRC that the Dubai property has been my PPR for over 2 years (which it has) and them move to the UK next year and rent it out what happens to the UK property calculations? Do I have to remove the 36m relief and instead apply it to the Dubai property?

I can put this scenario on a spreadsheet if it makes it any clearer.

Thank you once again for helping me work through this one. I have tried to read the publications but they are really for simple scenarios. regards

[TaxationPete]

No the PPR for the UK property remains as it would for the Dubai property which is your PPR by matter of fact. If you had left the UK property empty then you would have had to nominate that property. You made no mention of moving back into the UK property for 3 months or so, thus the difference. PPR is calculated in 'Whole' Months so 01/04/08 to 30/04/09 is in fact 12 months . Your actual date of ownership is the date of the exchange of contract which will often be difference to the date of occupancy. Hope that help. Regards Peter

[outtahere]

Hello Peter and thanks once again for your reply. I realise I did not make it clear in my layout that the final 3 months between letting and selling we would be occupying it in order to refurbish and sell on. If it were empty then it still counts as letting period I guess.

I think I understand. I can apply the same formula to both properties and the treatment is seperate for both. I will present this on a table and re- publish to ensure I have grasped this correctly. Of the online forums I have looked at and experienced this is by far the most useful thanks to people like you.

regards Raffaele

[TaxationPete]

Letting Relief is only available for each whole day the property is actually let. Void periods do not attract LR and nor does the period you move back in. However the period you move back in for increases your PPR period, again in 'whole' months but there in issue here. As PPR is treated as the last 36 months of ownership and you live there for say 3 months then you are not entitled to the 36 months PPR you are entiitled to 33 months PPR but the 3 months is added to the actual period of residence. There is an example of this on the HMRC web site, search under private residence relief. Regards Peter

[outtahere]

Hi Peter,

I have now put the most likely scenarios on a spread sheet but could not attach due to size restrictions. From this sheet you should be able to see the calculations as I see them. I realise now that this is not quite accurate as there are some acquisition and sale costs but for now I simply want to grasp the right idea.


UK PROPERTY Dubai Property
bought 01/09/1995 £180,000 bought 15/12/2006 £180,000
occupied 01/09/1995 occupied 15/12/2006
vacated 01/09/1999 vacated 01/04/2010
rented from 01/09/1999 rented from 01/04/2010
rented until 01/04/2010 rented until 01/04/2013
sold 01/07/2010 £450,000 sold 01/07/2013 £650,000
Gains £270,000 Gains £470,000

residence period 51 residence period 39
36 month rule 36 36 month rule 36
let period net of 36 m rule 91 let period net of 36 m rule 3
ownership period 177 ownership period 78

Residence relief £77,797 Residence relief £235,000
36 month rule £54,915 36 month rule £216,923
PPR relief £132,712 PPR relief £451,923
Letting relief £80,000 Letting relief £18,077

max letting relief £80,000 max letting relief £80,000
PPR relief £132,712 PPR relief £451,923
gain during letting £138,814 gain during letting £18,077

Lowest value of A,B,C £80,000 Lowest value of A,B,C £18,077

Total relief on property £212,712 Total relief on property £470,000
CG allowance £20,200 CG allowance £20,200
net gain £37,088 net gain -£20,200
tax 18% tax 18%
CGT Paid £6,676 CGT Paid -£3,636
Percentage of gain 2.5% Percentage of gain -0.8%

Assuming the UK property is not affected by the Dubai property then according to the formula I have used, the Dubai property would have zero CGT liability. That is due to the 36m rule mostly. Does that make sense?

best regards and thanks

[TaxationPete]

Not quite right. As you lived there for the last 3 months that increases your actual residence and reduces your 36 months PPR by 3 months. The PPR apportionment is 177/84. Letting relief is done in days not months. The output from the new information gives you a CGT bill of £7,500. Regards Peter

[outtahere]

Hi Peter, I am happy that with the UK property calculation there is some professional help need to hone the figures. It is not a large sum to pay. Going back to the full picture though there is the overseas property which is a much bigger issue. Was I on the right track with the Dubai property or is there a rule allowing these calculations for one property only? best regards and thanks as always.

[TaxationPete]

The rules are the same for both properties. I did not run the numbers on the Dubai property as I have not been in this afternoon due to a meeting with HMRC . I may take a look later, it is already 7pm even in Scotland. Regards Peter

[outtahere]

Hi Pete, thanks. Please let me know if I am on the right track with the Dubai property figures. If I am on the right track that just now leaves me to finalise my plans for the properties and focus on putting together a final scope of work together for a tax specialist. I have made some losses on investments while non resident and am hoping that these can be taken into account when I come to dispose of my UK and Dubai property. best regards and thank you for your continued advice. I assume this is your profession. If so are you able to send me details of where you work.

[TaxationPete]

There is something wrong with your numbers I have :
Capital Gains Summary

Purchase Price £180,000 15/12/2006
Legal Fees £0
Sale Price £650,000 01/07/2013
Enhancements £0
Legal Fees £0
Gross Gain £470,000
PPR Relief £451,923 £18,077
Letting Relief £0 £18,077
CG Allow'ce 2 £10,100 -£2,123
CG Bill £0

There is no letting relief applicable as it was let within the last 36 months of ownership and that period is treated as though you lived there. Regards Peter

[outtahere]

Hi Peter, have I used up my allowance of questions? best regards Raffaele

[TaxationPete]

I do not understand your question. Do you still have outstanding issues. Regards Peter

[outtahere]

Hello Pete, I did not hear from you or anyone on this final question. Did I ask too many questions?

[outtahere]

Apologies, I have just seen your last comment. I was concerned initially that I had gone beyond the simple tax questions and should now be seeking professional advice (hence my comment about allowance).

Yes I still do have an issue. My main question now centres around the treatment of the Dubai property.

Here is where I am stuck. I now understand (thanks to you) about the relief I am entitled to for the UK property.

If I now nominate the Dubai residence as principal private residence as from end of 2006 or mid 2007 (although it exceeds the two year rule I can provide plenty evidence that I had moved in). How does that now alter the calculations on the UK residence and can I safely assume that the same calculations I have used for the UK property would apply from this moment on with the Dubai property?

I hope this is clearer. best regards :)