Investing funds (earnt abroad) into UK property.

[Tji]

Hi everyone, it would be very much appreciated if you could help on an issue which I am struggling with;

I moved from the UK (to Dubai) at the end of January 2011, meaning I have been out of the country for an entire tax year and I am not intending to return to the UK for at least another 4 years (if at all).

I am about to be paid a sum of money which I would be looking to use to;

- firstly, pay off my morgage on the property I am renting out in the UK (which was formerly my main residence when I was living in the UK).
- secondly, use some of the funds to purchase a second property in the UK, which would also be rented out.

I am unsure whether the funds which I would be taking back into the UK, to repay my morgage and acquire a second property, would be subject to any taxation in the UK even though I am no residing in the UK.

I hope that I have given you all the info you require and any help is very much appreciated.

[etf]

Hi Tji

From the information provided, it appears likely that you will be regarded as not resident and not ordinarily resident (NR/NOR) from the day following your departure from the UK. This assumes you will remain in full-time employment overseas for a period encompassing at least one full UK tax year (6 April to 5 April) and your return visits to the UK will remain within permitted tolerances.

If you do indeed attain a NR/NOR status your general earnings e.g. salary should not be liable to UK tax. If the sum you are about to receive is a 2011 calendar year bonus and some of it relates to duties performed in the UK in January 2011 i.e. prior to the point in time you left the UK, there may be a UK tax liability on that part of the bonus payment.

Assuming you break UK residence, you should not have to pay UK tax on the funds you bring into the UK to pay off your existing mortgage/purchase your second property, but you should consider:

-capital gains main residence elections

-applying to HMRC to receive your rental income gross without tax deducted

-perhaps paying voluntary UK national insurance contributions whilst you work in the Middle East.

If you decide you require assistance with any of the above and reporting your UK rental income we will be pleased to assist.

Kind regards

etf

http://theexpatriatetaxfactory.com (sadly the website is still out of action as an uncommunicative former host provider seemingly does not allow transfers to a rival).

[etf]

On consideration, probably just one capital gains tax main residence election to consider (on departure from the UK) as the second property does not sound as though it will initially be used as a residence (2 hours of slow walking on the gym treadmill watching Newcastle this evening must have temporarily starved my brain of oxygen).

etf

[Tji]

Many thanks etf, to be clear I have already filled out a p85( ?), which I believe should mean I am a non resident now? I have also applied for the non resident landlord scheme for the first property and am currently receiving the rental income without any tax being deducted.

I understand that I will need to declare the rental income, (offset against any morgage interest, service charges, ground rent and any other overheads), however, could you kindly explain what is it you mean in regard to the 'CGT main residence election'?

Also, am I correct in thinking that if I sell my first property within 5 years of leaving, as it was my main residence for a time, I would not have to pay any CGT on the proceeds?

(Apologies as this has now moved onto A CGT issue but was originally posted in the income tax forum).

Many thanks
Tji

[etf]

See the thread below re CGT main residence election and working overseas.

http://www.taxationweb.co.uk/forum/main-residence-election-whilst-working-overseas-t33258.html?hilit=working+overseas+main+residence+election#p119500

The completion of form P85 does not necessarily make you NR/NOR. You will not be safe until your overseas employment has extended beyond 5 April 2012-in the old days HMRC would have said you are provisionally NR/NOR.

Kind Regards

etf

http://theexpatriatetaxfactory.com