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Capital Gains Tax Q&A
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Detailed Capital Gains Tax Questions
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Latest Qn's
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Disclosure of capital gain on property in Turkey USERNAME:JudithB
Tax Question: This is a question about whether my husband needed to provide details of the sale of a foreign holiday home on the 09-10 return. Background - We have been living in Belgium for 3 years whilst I have been seconded by my employer. My tax is taken care off by my employer under the Belgium/UK tax treaty. My husband has continued to file a UK tax return as he has received a UK military pension throughout the period and has also worked periodically on consultancy projects for UK companies for which he has been paid in the UK and paid UK tax on the sums. We sold a holiday home in Turkey before the end of the financial year and his share of the total selling price was less than the threshold of £40,400 and the profit for each of us less than £10,000. My question is does it still need to be declared irrespective of the fact that no CGT will be payable? . . .
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Calculating CGT on sale of Manor house and cottages - USERNAME:collyep
Tax Question: We bought a manor house with six cottages for £800,000 in Dec 2000. We have been renting out the six cottages for self catering holidays since that time and are now about to put the property on the market for £1.6m. The manor house has been our sole residence since we bought the property but this summer for the first time we rented out the manor house and moved out for 3-4 weeks. When we sell the property we intend to retain one cottage on the site which we intend to use for our main residence at some time in the future. When we bought the property in 2000 the manor house was estimated to be worth approximately 50% of the purchase price. Questions: 1. When we sell the property will the value of the manor house be exempt from CGT as it has been our main residence? 2. Has renting out the manor house for a few weeks affected our main residence CGT exemption? And would it do so if we rented it out on a more regular basis whilst it remained our main residence on paper? 3. Should we have the manor house valued separately from the rest of the property to establish the amount of CGT exemption? 4. We have spent approx £300,000 doing up the house and cottages - will this need to be apportioned to the manor house and cottages separately for CGT purposes? 5. When we retain one cottage, will the value of this cottage be ignored for CGT purposes until the cottage is sold at some time in the future? 6. Should we be considering other tactics for reducing CGT on this sale? Thank you in advance. . . .
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Inheritance tax and discretionary trust - USERNAME:Milcurr
Tax Question: Divorced woman has a house worth £700,000 in which she lives and two other properties which are let, worth about £150,000 each. She does not have much cash and no life insurance or pension - the rent from the let properties provide her with a modest income. She is healthly and in her early 60s so probably ok to make PETs but it may not be wise to give away lots of capital and leave her vulnerable in her old age. Wants to leave her property to her daughter in her will but is worried about IHT. Lack of cash means that CLT must be avoided too if over the NRB. Would it work to transfer a share in the equity of the house that she is living in, equivalent to the value of the NRB, to a discretionary trust of which she is a beneficiary and then she can carry on living inthe house and top-up the transfer later if the NRB goes up or she survives 7 years? Will the fact that she will carry on living in the property (as a joint owner and beneficary of the trust) cause any problems e.g. reservation of use? (Assume that this would be a problem if she gave a share in the property to her daughter, but not sure if using a trust with her a beneficiary will help - and using a trust is good in case she needs money in later years.) She can't afford to take out life insurance. Any other ideas to reduce IHT without incurring CGT or other charges now? Thanks! . . .
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Granting a tenancy to reduce value for IHT - USERNAME:rhealy
Tax Question: A family home is owned jointly by a husband and wife , who's joint estates will exceed any nil rate band, they wish to gift the property in their wills to one or more of their children. would there be any inheritance tax benefit if they first let part (rooms ) of the property to one , or more of the children, in terms of this diminishing the value of the property for probate purposes , (as vacant possession could not be readily obtained) ? Would it make any difference whether the rent payable was a market rent or a below market rent ? would it make any difference if the letting was to to a person or entity not a beneficiary of the property under the will ? . . .
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Purchasing an overseas property tax efficiently
Tax Question: Property ownership abroad. We are looking to buy a flat in Ireland for holidays over the next 10 years (and if feasible to rent it out for short periods ) and possibly to retire there in 10-15 years. I wonder if you give some advice on the best way to hold such property for UK tax purposes. The following may also be useful; my wife is non-uk domiciled (Irish) and my children are UK domiciled (Irish/British citizens). I am UK domiciled but have British/Irish citizenship (the latter due to a grandparent). All parties may be potential beneficiaries of a Foundation and Trust, if they become non-uk resident. These vehicles were established by a non-uk domiciled person some years ago. Thanks . . .
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Clogged loss and EIS relief
Tax Question: I should be grateful for your comments as to whether a gain which has been deferred via EIS CGT deferral relief, and which comes back into charge on the occasion of the gift of the EIS shares (after the relevant three year period)to a connected party, can utilise clogged losses which have arisen on disposals to the same connected party. In other words, is the deferred gain coming back into charge a gain "accruing to him on some other disposal....." as referred to in s18(3) TCGA 1992,i.e. a gain accruing on the disposal of the EIS shares, or is it merely a gain which "shall be treated as accruing at the time of the event" as referred to in para. 4 (1)(a) of Sch. 5B TCGA 1992 i.e. a gain which just accrues at the same time as the chargeable event, the chargeable event being the disposal of the shares? Thank you. . . .
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UK property owned by offshore company and UK tax on transfer
Tax Question: I am a non-dom non-resident in full-time employment overseas for the last 30 years. I have recently bought a UK property with an offshore company to avoid future IHT. I am the sole shareholder of the offshore company but not the director (the director lives in the ME). My question is : is it possible for me to gift the shares in the offshore company to my non-domiciled adult children and UK-domiciled wife (who is likely to use the house as her main residence) ? and if so what are the implications of this gift tax-wise for all of us ? e.g stamp duty on the transfer of the shares to them; current or future capital gains ? IHT ? and could my wife claim in future (as owner of 30 or 40 or 50 percent owner of the company shares ) the UK-company owned house as her main residence ? what are the implications for me if I retained a shareholding in the company but UK-willed my share to my wife.What are the tax implications for the adult children on their shares gift ? Thank you . . .
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Structuring investment in Guernsey company and future non residence
Tax Question: Hi, I am about to invest in a Guernsey based company and I am looking at the best way to mitigate against Capital Gains Tax when I sell the shares or income received on them. So could you please advise if I stay in the UK how this would be best achieved and what percentage I would have to pay. Ultimately I am looking to move to the Alps and set up a chalet / mountain guiding business. Ideally I would want to use the capital realised from this investment so can you advise if it is going to be better to move out of UK first and get employment abroad to tax advantage of not having to pay capital gains tax and take advantage of any tax benefits the country offered, or whether I should set up a foreign company to put this investment through and exercise this investment having left the UK. If so, would I be better basing that company in Guernsey or in the country I choose. Switzerland is a possibility but their tax laws are more beneficial if you don't intend to work or run a business I believe. So advice around where I could be based and still run a business from the Alps and gain the tax advantage would be appreciated. . . .
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Bed and breakfasting properties as non resident and offshore bonds
Tax Questions: Having been out of the UK for more than 10 years. I am considering becoming a tax resident again for a number of years, before emigrating again on a 'permanent' basis. My offshore CGT exposure is significant. I understand that if i crystallise any gains whilst offshore and then invest in Offshore bonds, then i could enjoy the Capital Gains on those tax free, once I had re-emigrated, whilst drawing down on up to 5% p.a. from the bonds whilst in the UK, on a tax free basis. A couple of questions please: 1) if the 5% is above the 20% tax threshold , would it still be free of tax or is this just a credit capped at 20%? 2) If I have other assets with significant gains on them, how easy is it to 'Bed and Breakfast' them prior to returning to UK, so as to mitigate any CGT exposure? I am talking real estate, not equities that can be traded easily. Are there strict rules to ensure that such transactions are arms length? . . .
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Moving to the Phillipines and avoiding UK CGT
Tax Question: I have owned 3 rented properties for many years. I want to sell I have rented out my former home and moved into a small apartment which is now my UK address. For 6-9 months of every year for the past 5 years I have lived in Philippines, in my own house, and now intend to move there permanently with annual visits to UK. What is the qualifying period now for living abroad and avoiding UK CGT? And how long would I be able to stay each year in UK. . . .
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Transfer shares to wife to use CGT allowance
Tax Question: Dear friends, I have three interrelated questions, as follows: 1 - I have been intending to transfer some shares held in my name in a US based account over to my wife. We have set a joint share trading account in the UK. My plan is to transfer the shares to this joint account and then when they get sold the funds will be deposited into a third account held solely by my wife. Is this the correct way to make sure we make good use of her CGT yearly allowance? Or would it be necessary for the shares to be transferred in the first place to an account held exclusively under her name? 2 - For someone without any other form of income how much Capital gains can be realised this year in order to completely avoid triggering any tax? As an example: My wife has been a UK resident since Nov 2008. She has not worked, didn't have any income and thereforedidn't pay any tax in the UK or elsewhere since her arrival. If the above mentioned shares transferred to her as a gift are sold how much is she allowed to gain before having to pay any tax? I will be looking forward to your kind advice. Best Regards, . . .
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Reducing CGT on property in UAE
Tax Question: I have a holiday home in the UAE and I am thinking about selling it. I reside the the UK and I am a UK citizen. I have heard that bringing the funds through Brussels would reduce CGT. Is this true? 1) Are there any ways that I can reduce my CGT bill? 2)If I decided to leave the UK and sold the property within this period, could CGT be avoided? . . .
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CGT on French Property
Tax Question: A married couple, from Helensburgh, retired to the Dordogne region ten years ago to renovate an old farmhouse, making clear to the authorities that it was their principal residence and not a second home. They bought an old farmhouse in Saint Laurent des Hommes for £135,000, and set about ensuring their paperwork was in order, which included making plain to the authorities that their property was not a holiday home. However, by 2002 the repairs and renovation work required to bring their new home up to scratch was too great, and they sold the property in April of that year, making a profit of Euro 36,777(£30,604) They moved to a smaller house in Normandy, thinking it would be their final move as they prepared to enjoy their retirement. However, in autumn 2005, they received a letter from officials in Dordogne demanding a capital gains tax payment of Euro 12,258. When they pointed out they were domiciled in the country and appealed the bill, they were told without explanation that it was being doubled to Euro 24,516 Surely as their Principle Private Residence there is no CGT due? I understand under MARD that HMRC are obliged to pursue the debt but5 surely there is no debt to begin with. How do we lodge a formal Appeal to the French authorities? . . .
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Calculation of PPR relief on property disposal
Tax Question: I am trying to determine whether we will be eligible for private residence relief when we sell our flat; and if not, whether we could qualify by moving back in before we sell (and if so, for how long?) Key facts are as follows: • I bought the flat in 1997 for £130k • I then lived in it until 2002. • In 2002-3 I went to work in Belize for 12 months, where I stayed in job-related accommodation (a room above the office). • From 2003-2005 I lived in the flat. • From Sep 2005 to Feb 2010 I was working for an overseas charity, in Afghanistan, Cambodia and Angola; in 2007 I married and my wife came to join me in Cambodia and then Angola. Throughout this period I (then we) lived in job-related accommodation (a room above the office, in a shared house rented by my employer, and then in a flat rented by my employer). • In February 2010 we returned to UK, and I have since started a new job with another charity in London. We could not move back into the flat in February as it was let out on a new 12-month assured short-hold tenancy in Oct 09 (and in any case it is too small for us, as we now have a baby) • We think that the current market value is around £380k We have read the HMRC advice on http://www.hmrc.gov.uk/cgt/property/sell-own-home.htm and in the attached leaflet; but are still not 100% clear whether we will qualify for private residence relief. We would therefore be grateful for your expert advice. Also, it has been suggested that we might not need to pay CGT if we move back into the flat for a period before we sell. We could do this if necessary, but it would be simpler if we do not (not least because the current tenants are interested in buying the flat, which would be much easier for all concerned). Can you confirm whether there is any truth in this, and if so how long we would need to be resident before we sell? . . .
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Electing property as a main residence - follow up
Tax Question: 1) We have now decided that due to market conditions we would like to try to sell Property C before Christmas regardless of whether or not we sell Property A - property A is now being marketed for sale though a local agent. We are mindful that the property sales season tends to taper off into autumn so would like to start marketing C as soon as possible. If it does not go under offer by Christmas we will consider letting it out again. Would it be ok to offer Property C for sale BEFORE we move in on 31st August given that even if we received an early offer we could still ensure that we live there for at least 2-3 months before completion? I am hoping that as we are making a PPR variation rather than relying on fact this will not be a problem. 2) If (1) isn't ok, when would be the earliest date after moving in that we could commence marketing without jeopardising the determination of Property C as our main residence and the PPR relief, lettings relief and extension of the Transferee's period of ownership permitted by S222 7(a)? 3) As we will be able to clearly demonstrate with utility bills, council tax etc that Property A was our main residence for at least 2-3 months do we need to justify the reason for varying the election to HMRC, because if we sell or relet Property C they may argue that we only moved into the property to claim the tax reliefs. In other words does the PPR election stand purely on evidence or does there need to be a specific reason such as employment? 4) After the transactions have completed do we need to vary the PPR election again immediately or do we have 2 years? Many thanks for the help and advice. . . .
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Buying US property and minimising UK and US tax
Tax Question: We are in the process of purchasing an investment property in the USA and are trying to determine the best way in which to hold it... 1. The property is located in Stowe, Vermont. 2. The purchase price is $380,000 and I estimate that the property requires a further $100,000 spending on it to bring it up to date. We intend to hold this property for the long term. 3. It is our intention to live in the property for 4-6 months from January 2011 in order to undertake the renovations. 4. Following this we intend to use the property as a holiday home but also to rent it as a vacation letting. We would manage the marketing ourselves and probably employ a local company to manage the cleaning etc. We estimate the annual income (pre expenses and tax) to be in the region of $20,000. 5. Myself and my husband are both UK domiciled, but non-UK resident. We are currently resident in Shanghai, China and have been for almost 7 years. Our children have never lived in the UK, although Mark has a daughter from a previous marriage who does live in the UK. 6. Our combined assets are in the region of GBP 3 million. 7. My husband is the beneficiary under 3 separate trusts: - 1 discretionary trust in Cayman (which owns a Cayman company but is currently merely a holding company with a value of around GBP600,000 -- his children and spouse are within the class of beneficiaries) - 1 IIP trust in the UK of which he is the life tenant and his children are the remaindermen (which holds shares in a family business, and to all intents and purposes is treated as the children's with all income being placed in individually held bank accounts in Hong Kong for each child with a value of approx GBP 600,000 - 1 IIP trust in the UK (of which he is a remainderman with a value of around 300,000). All of these trusts, ultimately, do or could form part of his estate. Our main concern currently is relating to the IHT implications of owning assets in our own name. The trust in Cayman is costing a small fortune in annual management fees, and we are considering closing the trust and transferring the company into our names. We have been advised we could do this with no CGT implications as we have been offshore for more than 5 years. We could also have the trust distribute the entire fund to our children and also avoid CGT, and pay a sum equivalent to this to his daughter (which would be a PET but seems to be the most tax efficient way to distribute the funds of the trust). We would then use the children's monies and some of our own to set up a company which would purchase an international portfolio of properties. Their shares would either be held on a bare trust or in a trust until 18 years of age. They could then have outright ownership of the shares, but we would plan to have restrictions in the articles as to what they could do with them. We have the view that the income generated could be used for their education/other and we would have a better control of the assets when they reach 18. We have been advised that the best way to purchase in the USA is to have an LLC to avoid estate tax - however, it is preferable that it is not owned by us, so we need to consider the best way to do this. Can you advise? I would also appreciate some feedback as to whether my assumptions above are correct and whether this is the best way to go in order to protect the assets from IHT in the UK and to also setup something to provide for the children by sidestepping our claim on the Cayman trust. I would also like some advice on the option of resettling the existing Cayman discretionary trust and whether there would be any tax consequences of this. Many thanks. . . .
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