Capital gains tax for non residents selling UK property and the split year basis

Question:

We have sold the shares in our UK company for £500,000 in April this year and have an estimated capital gains tax bill of around £25,000. We have now bought a house in France and are not working.

We've still got our UK house so plan to rent it out on short term lets of 6 months at a time with a view to selling it when the market picks up.

If we go to France in November 2008 & let our UK house how many years do we have to sell without CGT due & if it is longer what is the % > rate that will be due , at present we have a gain of £230,000.

We plan to fill out the form NRL1 for tax on the rent due when we go to France. Will this have any impact on the calculation of tax due on our company sale or will the Revenue calculate it for the whole tax year regardless when we left the UK?

We have no plans to return to the UK.

We do not plan to be residents in France until January 2009 (182 day rule allows us to delay & we have been advised not to due to the company sale having to be declared on our annual French tax return Jan 09 - Dec 09 & complicating things).

We have a UK accountant who will handle our UK tax returns & rental income etc when we are in France. We also know about double tax treaty in France on UK earned income & think the rental income will always be taxed in the UK regardless of residency next year or how long we live in France.

Answer:

The standard rule is that an individual would need to be non UK resident/non UK ordinarily resident for five complete tax years in order to avoid a UK CGT on the disposal of most assets. However, in order to claim the exemption, it is crucial that you dispose of the asset during a tax year that you are wholly non UK resident/non UK ordinarily resident.

On the assumption that you have been previously UK resident, the split year basis will not apply for CGT purposes. Therefore if you were to leave the UK in September 2008, for a permanent absence (or for at least three years) the period from April 2008 - Sept 2008 would traditionally be a period of UK residence with the period Sept 2008 - April 2009 being a period of non UK residence.

However, this split year basis will not apply, and if a disposal was made in April 2008 (presumably post 5 April 2008) you would need to be classed as non UK resident for the entire tax year to avoid UK CGT on the shares, as UK CGT is chargeable if you are UK resident or ordinarily resident for part of a tax year.

On this basis you would be charged to UK CGT in the current tax year on the shares, irrespective of your future residence status.

If you were able to assert you were non UK resident and non UK ordinarily resident for CGT purposes during the whole of 2008/2009, the five year rule would in any case apply and you'd need to meet the five year absence requirement.

In terms of your UK house though, you can sell this in the future free of CGT due to your non resident status providing you're non resident for at least 5 complete tax years.

If you don't satisfy this 5 year requirement you can still get a CGT exemption on the property be selling within 3 years of the date you moved out (and claiming principal private residence relief.)

The form to receive your rental income gross, would not impact on your CGT position, or your actual residence position. This would simply inform HMRC of the property and the source of income.

You should complete form P85 on your departure. This would provide the Revenue some details on your current/expected position and would allow them to initially consider your residence position. You should state on this that you expect to remain overseas permanently.

In answer to your remaining point, delaying a departure would not have any beneficial UK tax implication in terms of establishing non residence or the chargeability of the sources of income/gains.

About the Author

He worked in Ernst & Youngs Entrepreneurial Services department for a number of years before setting up his own tax planning practice. He is now a full time tax author.

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