Main residence and new rules from 6 April

Main residence and new rules from 6 April

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I have a client who lived in his UK home with his family until 3 years ago. He is non-resident for UK taxes at the moment, living in France. The property has been let out since he left the UK.  He has asked if he would have any tax to pay if he sold the property. Doing the usual calculations for main residence relief including the last 18months and lettings relief there is no tax to pay, although there is a large gain before main residence relief. However I'm a bit puzzled by the new rules coming in in April for non-residents selling UK property. They seem to say that main residence relief will only available if he will be UK resident in the tax year when he sells it or  if he lives in the property for 90 "midnights".  If I have understood this correctly then if he remains in France and does not live in the property again, remaining non-resident, then no main residence relief will be available. This seems absurd, as if he returned to the UK and became resident then even if he went nowhere near the property there would be no tax to pay as main residence relief will apply.  I'm hoping I've misunderstood this and someone can clarify the position for me.

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Head of woman
By Rebecca Cave
10th Mar 2015 09:00

New rules only apply to gain from 6 April 2015

To calculate the non-residents CGT charge (NRCGT) you need to split the gain arising on the property between that relevant to pre and post 6 April 2015. 

For the period before 6 April 2015 the current rules apply, and your cleint will get PPR and lettings relief. For the period from 6 April 2015 he is unlikely to get PPR for the property as he spends no time it, and hence no lettings relief for the period either. However, it is only the post 6 April 2015 gain that will be subject to NRCGT, which if he sells within a few years, will be small.

The draft legislation for the NRCGT is certainly full of contradictions and holes, and we hope there will be a more complete version released on 20 March.

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Replying to FirstTab:
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By Newstart
10th Mar 2015 09:03

Thanks very much for your quick and helpful reply. Could I check one thing?  If my client sells in May 2015, say, he would still get main residence relief in respect of the gain accruing up to 5 April. So would we need to time apportion the gain? (It would be impractical to "crystalise" the gain in any way in this case.

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Head of woman
By Rebecca Cave
10th Mar 2015 09:16

Sell in May and still get PPR

Yes, if your client sells in May 2015, the PPR (main residence releif) for the period he occupied the property before 6 April 2015 will be retained. The gain can either be time apportioned over the whole period of ownership to find the gain relevant to NRCGT, or you can get a valuation at at 6 april 2015 and use that to determine the gain subject to NRCGT.

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By Montrose
10th Mar 2015 10:04

French CGT

If your client is tax resident in France, he should also check out whether he has to pay Impôt sur les plus values immobiliere  on any gain arising on his sale of UK real estate    o

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By CrowtherP
11th Mar 2015 12:51

P.S. on gain of £25,000 or more

P.S.

Gain of £25,000 in Early part of 2015-16 [i.e. the excess of the sale proceeds after selling costs over and above the O.M.V. as at 5.4.2015 unlikely to exceed 25,000] is quite unlikely.

Open Market Value 5 4 2015    £1 m.

Sale 2015 Summer   maybe at £1.05 mill.    Costs: 1.00% agency + VAT; lawyers = £14,000 at least.

Net proceeds therefore £1.04 or £1.03 million. Annual CGT Exemptions [two perhaps] £22,000.  Small tax charge, only, even on this 5.00% uplift in value.

 

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By Paul D Utherone
12th Mar 2015 21:59

I was mulling over a similar situation today

and all I seemed to come up with were ' what ifs'

It seems that anyone in this boat needs to get a valuation done of the property at 5 April 2015 as soon as possible for the rebasing option to have something to work with in the future to consider whether straight line or rebase to 5/4/2015 on a sale.

Then I wondered how rebasing rather than straight line might affect use for a PPR claim - ie if you left the UK in March 15 and started letting, only selling the property years down the line would a rebasing election @ 5/4/15 lose any 'letting relief' claim because the property was never your PPR post the rebase as compared to a straight line claim.

Or what about someone who leaves and becomes NR years after 5/4/15 but owned the property as their PPR at that date and keeps it on after they later become NR? Do they later need to get a 5/4/15 valuation on the ultimate sale (or perhaps better when they go NR and decide to keep the house and let it) to consider the options then.

And then at what point do you apply potential PPR reliefs? Presumably for straight line it runs Gross gain : PPR releifs : apportion gain net of reliefs. But for rebasing is it two or possibly three calculations: up to 5/4/15, possibly 5/4/15 until becoming NR and then for the the final NR period applying PPR & possibly letting reliefs to the first two and not the final period?

As I say all just a stream of whats ifs based on reading to date including a couple of goes at the draft legislation with a cold towel wrapped round my head. Seems like I need to do a lot more reading!

And all this to raise very little in tax in all probablity, but to be able to say "look we are dealing with all those naughty non residents avoiding tax"

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By shoshana
16th Mar 2015 13:15

Rebasing/PPR/Letting relief

My understanding is as follows:

There are 3 ways the gain can be calculated and the taxpayer can choose which applies (the one that gives the smallest gain or largest loss presumably)

Default method: Rebase cost to 5.4.15 MV - this is effectively eliminating any gain prior to 2015/16 so logic would dictate that by using this method, no PPR nor letting relief would be necessary prior to 5.4.15Time apportion gain for period of ownership between pre-6.4.15 and post 5.4.15 periods - both periods would then be eligible for PPR/letting relief under the normal rules (including the new rules for non-residents from 6.4.15Take the gain or loss for the entire period and do not time-apportion - would only be attractive if the residence is sold for a loss.

Have I missed anything? (pauses, waiting to be shot down in flames!)

Malcolm

Malcolm Greenbaum

Director, Greenbaum Training and Consultancy Limited

IFRS, UK GAAP, US GAAP, UK tax and VAT

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By Paul D Utherone
16th Mar 2015 13:35

Agreed, I was probably overthinking it

... but it did seem that we would be getting into yet more convoluted computations.

Your (1) seems reasonable based on what happened with 3/82 rebasing

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By Paul D Utherone
19th Mar 2015 10:18

What have I missed in Q11/A11 in the NRCGT document ...

... issued yesterday?

The example is someone who left the UK in 2010 having used the property in question as their PRR for 20 years and sells up in Oct 2016.

The answer is that the period from 5/4/15 to 10/16 will be covered by the final 18 month extension to PRR.

That presumably works on the basis that a rebasing election to 5/4/15 is made, the chargeable gain is on the period 4/15-10/16 but is covered by PRR 18 month extension so the gain is nil.

That ignores the period 2010-2015 after the person had left the UK and when the property was potentially not their PRR and chargeable?

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