CGT uncertainty around foreign property & MRR

Help needed with choice of professional adviser

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I realise that I will probably have to engage a specialist professional to advise me on this issue, but I wanted to run it past the excellent contributors on this website in order to get a rough picture of my position and to work out how best to proceed.


In 1995 my father transferred the ownership of the house I grew up in, which is situated in Italy, to me and my three sisters, on the agreement that my mother could continue to live in the house during her lifetime (she and he had split up by this time and he was resident in London).

None of us four children were living in the house by this time.

My mother died in May 2015 and we finally sold the house in Feb this year.

So I presume we're looking at CGT based on 24 years of gains if we're not eligible for main residence relief, and just 4 years if we are eligible? (disregarding for clarity any nine month PPR exemption or whatever is in force now).

I should have said that I am a uk national, resident and paying tax here.

Also that at the time the house was gifted to us there was no trust set up, but that I guess that an implicit trust would be assumed, and I am in possession of letters dating from 1995, between me and my farhers solicitors and my mother, which discuss this arrangement and approve it.


I've had a look through much of the TCGA 225 pages and done a fair bit of hunting around on the web, including here on Accounting Web, but I still don't feel completely clear about much of this, infact the HMRC pages are pretty confusing in places to say the least.


So I was hoping that someone here would be able to give a little more clarity to the problem, especially since I have left this very late, so if I'm going to seek advice I need to target the right person for the job.

Do you think the fact that the house was in Italy is going to be a bigger part of the problem than simply assessing our eligibility to main residence relief?

Will our eligibility to MRR be dependent on whether our Dad claimed hold over relief on the transfer in 1995, and would it be a good idea to go to the solicitors he engaged at the time to sort this out as they may have a good handle on this side of it?


Any help or comment anyone here can give would be really very much appreciated, as it might help us to make more informed choices as to our next steps.

Many thanks



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Replies (10)

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By Matrix
24th Nov 2019 08:49

I assume you have already paid the Italian tax. I would engage an adviser who can advise on property tax and double tax relief.

You don’t say if you have lived there since you owned it - how old were you and were you living there in 1995? If it was ever your PPR then look at lettings relief, I don’t think dependent relative relief applies but you can have a look. Holdover relief would not be in point, you would start with the 1995 market value.

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By Tax Dragon
24th Nov 2019 08:54

As you say, the property being in Italy could change the UK analysis completely. Not to mention it adds an Italian tax angle (do you know the italian tax position?) And then there's the tax treaty between the UK and Italy to consider.

These are outside the capabilities of your average accountant - even if you can find one to take you on at this time of year. One plan might be to declare the gain and pay the tax making the worst case assumptions and amend your Return afterwards.

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By Matrix
24th Nov 2019 09:35

I agree it may be hard to find someone at this time of year, I have had the odd enquiry with an international angle through these sites but it is hard enough dealing with my own clients’ new issues:

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By Justin R
24th Nov 2019 21:33

Thank you both for your replies.
As far as I know from asking my sister who lives in italy, there's no CGT to pay in there. I'm not sure whether this is because of an exemption similar to MRR or not, but her accountant says she has nothing to pay.
And I was not living at that house when the transfer was made, nor did I afterwards (I was already living in the UK by that time).

I thought that you might say I would have to pay the full CGT and then try to claim it back, having left it to the last minute like this.
I'll hazard a guess that it will be more difficult, and be more likely to attract attention from HMRC. That'll teach me.

So it sounds like a specialist in private international tax would be the best bet. I've had a look already on the websites you linked to Matrix, which was very helpful, thank you.
I'll see if they can help me with it after the rush is over in the spring.
Any more comments would be welcome, but if not thanks very much for the help.

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Replying to Justin R:
By Matrix
24th Nov 2019 22:47

If there was no Italian tax then you don’t need an international tax expert. I would check your own position though, by MRR I assume you mean private residence relief but you say you never lived there?

I don’t think you even need a property expert anymore, unless you want to pay someone to tell you that no reliefs apply (why do you think you are not subject to full tax on the gain, given you never lived there)?

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By Tax Dragon
25th Nov 2019 06:41

I would want to know why there was no tax in Italy. Is it just computational (eg an allowance for inflation covers the gain) or is there another reason? Does that reason apply to you - it's all very well your sister taking advice on her Italian tax, but she is not you and your tax may conceivably be different. Or do the Italian authorities recognise a trust and it's the trust has no tax?

This last could be helpful to you - though, if this is the case, matters may be far less simple than Matrix implies.

Also, whilst I don't expect it to help and whilst I am not going to find out what it says for you, the double tax treaty must be consulted. So I (also) disagree with Matrix to the extent that he appears to ignore that point - I guess unlike me he might already have looked into that aspect for you, and concluded it doesn't help, in which case I withdraw my additional disagreement.

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Replying to Tax Dragon:
By Matrix
25th Nov 2019 07:29

If the OP wants to get our trust expert Justin on board then they can, I have no experience of trusts.

The treaty looks pretty standard to me, so Italy has the first taxing rights but the disposal is also taxable in the UK with credit for any foreign tax against the UK tax. I also advised the OP to check his own position in Italy.

I still don’t see why he would not be subject to full UK tax on the gain, that would certainly be my starting position, it looks as if he is taking advice anyway. I suppose an international tax expert may be useful so they can address domicile and remittance basis.

I just didn’t get why he thought PPR applies when he has never lived there?

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Replying to Matrix:
By SteveHa
25th Nov 2019 08:51

I suspect he was assuming (incorrectly based on the terminology in the OP) that mother was a beneficiary of a trust, and since she lived in the property, that it would qualify for PRR on that basis.

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Replying to SteveHa:
By Tax Dragon
25th Nov 2019 09:07

A lease for life is not a trust - you wouldn't need s43(3) IHTA if it was.

And if there was a trust, and if mother had an IIP, you wouldn't need PRR.

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By Justin R
27th Nov 2019 12:28

Thanks again for your comments, and I'm sorry to be so slow to reply, I was hoping to get more info on why my sister has no tax to pay in Italy (shes been in touch with her accountant) but no response yet on that.
You are correct that I hoped that I might get an exemption under s225 based on my mother having a right to occupy and therefore being the beneficiary of an implied trust (maybe having a usufruct even?).
I read on hmrc cg65400 s225:
"During the period of ownership of the trustees the property must be a dwelling house occupied as the only or main residence of a person entitled to occupy it under the terms of the settlement.
If these conditions are fulfilled private residence relief is due in the same way as it would be due on a gain accruing to an individual."
and on implied trusts:
"Normally the common intention must date from the time the property was acquired. So you are looking for evidence of agreements, arrangements or understandings that someone would have an interest in the property when the legal owner or owners acquired the property."
Reading on through it all (as much as I could understand...) I thought that we might have that evidence.
However it seems that implied trusts arise by operation of law and so this might be a very complex scenario. Will I be on a hiding to nothing?
Especially if your last couple of posts are correct and I waste a lot of money and time trying to prove an implied trust when there wasn't one!

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