CGT - Help Required

[wtruss]

I have been living outside the UK (Non-res Holland) for about five years as a non-resident I plan to return to the UK early next year. During this time I have rented the property (My only UK residence – previously primary) through an UK estate agent. I would like to sell the property to purchase another as my primary residence within the UK. I estimate that the gain on the sale to be GBP 150,000.00. Would I need to pay CGT? If so howmuch? Is there a sliding-scale breakdown? How can I omit paying any of my hard-earned gains without breaking the law!!! What happens if I keep mum!!!

[Lambs]

Your primary relief is Principal Private Residence. Basically, for periods when it was occupied as your PPR, that proportion of the gain is deemed to be exempt from CGT.

The gain is deemed to accrue over the period of ownership of the property, so if you have owned the property for 10 years, £15k of the gain will be apportioned to each year. You therefore start with a position that approximately 5 out of "x" years, (I think strictly you should work in months), are chargeable, so 5/xths of your gain is chargeable. The clock starts from ownership post March '82.

You are, however, given more to play with:

If you have ever occupied the property as your principal private residence, then the last three years of occupation are ALWAYS DEEMED to have been occupied as your PPR.

If you RE-occupy your property as your PPR prior to its disposal, such that any non-PPR period is "straddled" by periods of occupation as a PPR, more years are allowed to be "turned into" PPR-qualifying years:

A total of 3 years for any reason
A total of 4 years where forced to re-locate in the UK for work
Any amount of time for employment overseas

The last one, no doubt, will be of particular interest.

As I understand it, you will have to physically re-occupy the property in order to benefit from any or all of the latter three reliefs - you cannot rely on the "deemed" occupation rule of the last three years, to be treated as real occupation following a period of absence. Note also that if you have obtained a PPR overseas in the meantime, e.g. if you bought a property in Holland, then you may lose the last three reliefs.

You may also be able to benefit from lettings relief, which can basically be applied to whatever gain is left chargeable, to the lesser of the gain which has thus far been excepted as qualifying for PPR relief, or £40,000. From memory, the fact that you let the property does not mean that you can't turn some or all of the periods of absence whilst let into 'exempt' periods, as outlined above.

Finally, don't forget that any gains still remaining can be further reduced by your Annual Exemption and Taper Relief, of the non-business asset variety.

There is plenty to throw at the gain, and provided you've lived in the property for a few years prior to going overseas - and particularly if you re-occupy the property as your main residence prior to sale, then you should be OK.

[Lambs]

Blow me, done it again: I should have mentioned that if you have been out of the UK for 5 whole tax years (which end on 5th April) then you will not be deemed resident in the UK for CGT purposes, in which case you won't be liable in the UK to CGT on any disposal before you return, regardless of whether it's your PPR or not. However, for this "block" exemption, be careful about selling just prior to your return: for CGT purposes, you are deemed resident for the entire tax year in which you return, so there's no "split year treatment" like there is for Income Tax. For instance, if you have spent 5 tax years outside the UK, ( you can have some return visits, but they cannot exceed 91 days on average per tax year, or 182 in any one year) and then you come back in, say, September 2005, then you're resident for CGT purposes for all of 2005/06, i.e. from 5th April 2005 onwards - so you'd be a bit cheesed off if you'd sold it on, say, 31st May 2005, even if it's before your return to the UK. Don't forget 'though, that you'll probably be liable to CGT, or its equivalent, in the country in which you currently reside - i.e. Holland. You will probably find that there's a similar PPR exemption in Holland, but it may not be so easy if you have a PPR in Holland, just as the rules are restricted for UK properties where there is more than one PPR - see above.

[Lambs]

You'll have to check up on that caveat about the split-year treatment not applying to CGT: I think Extra-Statutory Concession D2 used to apply, but died a death a couple of years ago. However, I do know that if you're coming to take up residence in the UK for the first time, then you shouldn't be hit for UK CGT on assets disposed of prior to arrival. It may still apply if you've been out of the UK for 5 complete tax years, in which case you wouldn't have to worry so much about making the disposal in the same tax year as your return to the UK. Apologies for any confusion.

[Lambs]

Have checked ESC D2, and you're in the clear provided you have been non-resident for 5 whole tax years, such that you could dispose of the property in the same tax year as you re-acquire residence in the UK, and it shouldn't be a problem provided you sell prior to your return. You should be sure of your non-resident status for the 5-year stretch, however, as selling prior to your return will probably 'knock out' your opportunity to re-occupy the property prior to sale, and make the most benefit from PPR exemptions. (e.g. absence for employment abroad).

ESC D2 did change a few years ago: I think it was more beneficial and if you left the UK before 17th March 1998, you should let us know.