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Where Taxpayers and Advisers Meet

CGT resident/non-resident partnership

Jack Walkers
Posts:1
Joined:Wed Aug 06, 2008 3:04 pm

Postby Jack Walkers » Tue Jul 22, 2003 4:27 pm

Dear Team,

I am a Hong Kong resident (where no CGT applies) and have been for many years. I am in the process of buying a property in UK jointly with two family members. The property will be in my name, with one of my family members acting as guarantor for a UK based buy-to-let mortgage. The property will be rented out at more that 100 pounds per week. I own no other property in the UK. I have no other income in the UK. My question is in several parts:

a) Upon sale of the property, (assuming there is a gain) is the CGT avoidable? (Is it necessary to wait 5 years after disposal before returning to the UK?)

b) Does income tax have to deducted at source by the agent/tenant, or can the interest on the mortgage be claimed against the rent because there is a UK mortgage.

c) Would an offshore trust or any other vehicle be a better way around either the Income Tax or CGT issue, assuming we intend to buy further properties in the future (before selling the first one).

d) I would also be obliged if anyone knows of a double taxation treaty between the UK and HK.

Thanks in advance for any advice on these matter.

Jack

accountant@uktaxshop
Posts:550
Joined:Wed Aug 06, 2008 3:04 pm

Postby accountant@uktaxshop » Wed Jul 23, 2003 1:32 am

Jack

a) Yes. As a non-resident (more than 5 years) you have no liability to UK CGT. You could sell today, and come back tomorrow, so long as you have been out for 5 years.

b) There is theoretical deduction at source of 20%. However in practice you would make a claim to have it paid gross. You can then claim a full personal allowance and mortgage interest relief. With this sort of rental, your liability is likely to be zero. However you would need to complete a personal return every year as an expat property owner.

c) I donÂ’t think this would avoid the liability to income tax - and there is no CGT

d) Yes there is one

Finally two word of caution,

Firstly you say you are buying with family members. If they are getting the benefit of the property - ie rental incomes and capital growth the technical ownership (the property in your name) could be put to one side, and a liability to income taxes and CGT be imposed on your family members for their share of the property.

Secondly, local taxes could apply. DDT's normally work by relieving the amount of tax paid abroad against the local tax charge. In the analysis above there is little tax (if any) arising in the UK, so there could still be a full charge in HK. A local tax advisor should be able to assist on this point.

If you would like some further help with this, please let me know. I have a number of clients in similar situations.

Regards

James Smith
Chartered Accountant
www.uktaxshop.co.uk
01284 764436

Ian McTernan CTA
Posts:1232
Joined:Wed Aug 06, 2008 3:02 pm
Location:Bedford
Contact:

Postby Ian McTernan CTA » Thu Jul 24, 2003 10:40 am

To be on the safe side, in answer to a) above, if you do sell, make sure it is not in the same tax year as you return to live permanently in the UK, ie. sell before 5 April in one tax year, return the following tax year.

Ian McTernan CTA
McTernan Associates Ltd
Chartered Tax Advisers
ian@imcternan.com
McTernan Associates Ltd
Chartered Tax Advisers
Bedford
Email through link on website:
http://www.imcternan.com


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