Expat Capital Gains Tax Issues

[chempsall]

Hi all,

My wife and I bought our current home in mid 1999 and lived there for just over a year before I took up my current position in Saudi Arabia. Since then the property has been let out and we have received rental income free of tax with the agreement of the Centre for Non-Residents.

We now wish to sell the property and purchase two other properties. This raises a number of questions.

(1) Will be liable for CGT on the profit realised from the sale of our current home? We expect this to be in the region of £50k.

(2)Since we will never have lived in either of the two new properties will we be able to receive the rental income without paying taxes?

(3) Will we be liable for CGT when we eventually come to sell either of the properties?

(4) How will the situation be affected if we purchase more property in the future?

(5) What ways are there to shelter from any of the taxation issues raised above? An Australian colleage of mine owns a number of properties through a company registered in Lichtenstein but his description of the arrangements makes it sound extremely complicated and possibly of doubtful legality? I have no desire to have the taxman after me.

I will of course be engaging a professional to fully advise me regarding the above but wanted to get an idea of the issues before doing so.

Many thanks to anyone who can help.


Chris

[dean.power@wilfredtf]

Hi Chris,

Firstly it is important to remember that the Inland Revenues' agreement to have the rental income paid to you without tax deduction under the Non-resident Landlords scheme does not mean the income is exempt. If you are issued with a return the income must be declared, deducting allowable exependiture.

1) If you return to the UK before being overseas for five complete tax years, then the gain would be declarable in the year of your permanent return here. As you did occupy the property the last 36 months of ownership will be exempt, so it would be an apportioned gain declarable.

2) As I have already said you probably won't have too many problems in having the rental income paid to you without tax deduction, but you would need to check the position at the end of each tax year to ascertain if the net profit is inexcess of your personal allowances.

3)Your residence status at the time of disposal and the length of time overseas will dictate if you are liable.

4) It is likely that with further properties, you could be generating an income tax charge. Also if you are seen to be trading in property by the Revenue disposals could be liable to CGT irrespective of how long you have been overseas.

5) There are ways of mitigating CGT if you are coming back to the UK (use of Trusts) but your exposure to Income Tax will remain.

Hope this gives you an idea of the likely consequences, please contact me if you need anything further.

Dean