UK - France capital gains on property

UK - France capital gains on property

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I have a client who is resident in France but owns and rents UK property. He moved permanently  to France in 2007 but has owned the property portfolio for some time before that. He has asked me what the UK CGT situation will be if he sells a property.

Looking at HMRC CGT manual CG12600 it says

Persons, including companies, are not chargeable to tax in respect of chargeable gains if, in the year of assessment or accounting period in which the disposal is made, they are neither

  • resident nor, in the case of a person other than a company, ordinarily resident in the UK, nor
  • non-resident and in the case of a person other than a company carrying on a business in the UK through a branch or agency, see CG25500+, nor
  • non-resident and in the case of a company carrying on a trade in the UK through a permanent establishment, see CG42100+, nor
  • associated with exploration or exploitation activities in a designated area of the continental shelf.

However Article 14 of the latest Double Tax Treaty says

Gains derived from the alienation of immovable property referred to in Article 6 and situated in a Contracting State may be taxed in that State.

There is of course the MAY in the latter article but I am assuming if a state may tax something it usually will.

So the law seems to say the person is not taxable but the asset is. Which applies in practice ? I appreciate he will not be taxed twice under the DT treaty but I do not know if he would need to make a UK CGT declaration and pay CGT to HMRC.

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By gbuckell
08th Dec 2011 09:48

No CGT

You are correct. The DTT gives the UK the right to charge CGT but the UK does not exercise that right. So no UK CGT unless he returns to the UK within 6 years of his departure.

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By cycnav
02nd Sep 2012 18:00

UK - France capital gains on property

I have read that  that the recent double taxation treaty gives the French the right to tax people who are  fiscally resident  in France on UK based property. 

On top of that CGT in France has recently been changed. Under the old rules you only needed to have owned a property for 15 years before it was completely exempt. This has been doubled to 30 years.

 

So for example if you had owned a UK rental property for over 15 years you were exempt. Under the new rules this house will now generate a CGT charge. Also the annual Indexation allowances are on a sliding scale starting at 0 rising to 8% in the final 5 years of ownership. If you are resident in France not only do you pay tax but also social charges meaning the rate you pay is well over 30%..

There are other allowances but even so this means that the CGT charge could be substantial. I would strongly advise that anyone considering selling should find out what  their CGT liability is before selling.  

 

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