CGT on an overseas property

[COB55]

Hi everyone,

I'm trying to help my parents with a CGT calculation. I believe I have done the calculation correctly but I wanted to confirm it with someone that knows UK tax law very well. These are the facts of their circumstances:

- My parents have been living and working in the United Arab Emirates (UAE) since the 1980s. They are planning to retire in the UK in April 2018.
- My father is a British critizen and was born and raised in the UK. I'm pretty sure he is UK domiciled.
- My mother is a British citizen but she was born and raised in Lebanon. She may not be UK domiciled, since she wasn't born in the UK.
- They purchased a house in the UAE in 2003. I'm not sure of the exact date, but for the purpose of the calculation I've assumed it was 1 January 2003.
- They have been living in this house since they purchased it. They plan to continue living in it until they move to the UK in April 2018.
- They also purchased an apartment in the UK in 2015. This will become their new residence when they move to the UK.
- If my parents sold the UAE house before they move back to the UK, they will not pay any CGT since they won't be UK resident at the time of the sale.
- My parents would like to keep the UAE house for a few years after moving back to the UK, so that they can continue to stay in it on holidays in the UAE. However, they are concerned about the CGT implications of selling the house at a later date, since they will have to pay CGT on the sale of worldwide assets once they become UK resident.

I've done a few calculations to work out how much CGT they will pay for each additional year that they keep the UAE house after moving back to the UK. I've assumed that the house in the UAE will qualify for principal private residence relief (PRR) because they have been living in it since 2003 and will continue to do so until April 2018. Please let me know if you think the house will NOT qualify for PRR, as this is critical to the calculation.

Date of purchase = 1 January 2003
Date of residence in UK = 6 April 2018
Date of sale = 28 September 2019 - this date is calculated as roughly 18 months after 6 April 2018, as the last 18 months of ownership is exempt from CGT
Length of ownership = 6,114 days
Length of residence = 5,574 days

All figures below are in GBP.

Original value of the UAE house = 281,000
Estimated market value of the house on sale = 950,000
Chargeable gain = 950,000 - 281,000 = 669,000

PRR = ((length of residence + 18 months) / length of ownership) x chargeable gain
PRR = ((5,574 + 540) / 6,114) x 669,000 = 1 x 669,000 = 669,000
Chargeable gain after PRR = 669,000 - 669,000 = nil

Therefore I have worked out that they can keep the house until (approx.) 28 September 2019 before they will have to pay any CGT. Is this correct?

I've done another calculation to work out how much CGT they would pay if they kept it for one more year after that i.e. 28 September 2020. The length of ownership is now 6,480 days.

PRR = ((5,574 + 540) / 6,480) x 669,000 = 631,214
Chargeable gain after PRR = 669,000 - 631,214 = 37,786
Deducting the CGT annual exempt amount of 11,300 leaves a final chargeable gain of 26,486.
Since this is less than 33,500, all of it will be charged CGT at 18%.
The final amount of CGT my parents will pay is therefore 26,486 x 18% = 4,768.

Obviously I have made some assumptions about the market value of the house on the date of sale and I have assumed that the tax rates and allowances don't change.

Can you please tell me whether or not my numbers are correct?

Will HMRC ask my parents to prove that they lived in the UAE house until April 2018 in order to obtain PRR? Do you have any advice about proving this? I assume that it would be fairly easy to prove with copies of bills.

Is there anything else my parents should be aware of e.g. any other reliefs available to them or anything else which would affect the calculation?

Thanks very much for the help, it is much appreciated!

[SteLacca]

If the property is jointly owned, then they each qualify for the annual exemption, so exempt is £22,600, and not £11,300, reducing the gain in your last example to £15,186.

Your first looks fine.