Portuguese resident pays capital gains tax on sale of building land?

[Lookingforadvice]

An English father gifts his daughter agricultural land through a bare trust. The land is sold with planning permission for building three months later with a large capital gain. The daughter, a Portuguese tax resident, wishes to use the money to either purchase building land for a personal property or a personal property. What is her tax situation?

[AmanSood]

Hi lookingforadvice

Yes capital gains tax is payable on the sale of land as it is located in the UK. In addition, depending on how the property has been used e.g. if part of the agricultural land had residential property on it, your daughter may have had to report the sale of the land within 30 days from disposal and pay the arising capital gains tax. If this reporting was not undertaken, then HMRC may issue a penalty for delayed filing.

Hope this helps.

Aman

[Lookingforadvice]

Thank you very much for your reply. There is no residential property on the land. Do you mean English capital gains tax or Portuguese Capital Gains Tax as she will then receive the money in Portugal where she is a tax resident? If English CGT, then would she have to pay Portuguese Income Tax on the remainder?

[Lookingforadvice]

To clarify. She will use the money to buy land/property in Portugal.

[AmanSood]

as the land is in the UK, UK CGT will be payable. If CGT is also payable in Portugal then a tax credit/relief should be available in Portugal depending on the UK/Portugal double tax treaty.

[AGoodman]

I have to disagree on this one.

If the father is UK tax resident, he would pay CGT on the gain when he makes the gift to the daughter, taking the then market value as the disposal value. The market value would take into account the planning status at that time so if it had been granted, or was imminent, the gain would mostly accrue to him. Holdover relief would not be available as the daughter is non-resident. I suspect that rollover relief would not be available because the father does not receive any payment so cannot reinvest it in qualifying assets.

If the father is non-UK resident, there is no CGT or NRCGT to pay.

The daughter would not pay UK CGT on the subsequent sale as CGT is only payable by UK residents. Non-Resident CGT (a separate tax) is payable on residential property but land with planning permission is not residential property.

If the daughter returns to the UK within 5 tax years of departure (see the full rules under temporary non-residents), she could be subject to CGT on the increase in market value between the gift and sale.

I don't know the Portuguese position but it could involve tax on the gain and/or on receipt of the gift.

[maths]

I agree with AG's comments subject to the following:

the temporary non-reidence CGT provisions will not apply to any gain arising on a subsequent disposal by the daughter of the property gifted if it was (as appears to be the case) gifted after the daughter acquired non-UK residence; and

roll-over relief only applies to assets used in a qualifying trade and there appears to be no trade involved.

As AG states, the non-resident CGT charge requires disposal of a UK residential property interest which in turn requires that at some time the interest in the land consisted of or included a dwelling. This does not appear to be the case.