Capital gain on Swiss property

Question:

I have worked as a R&D engineer and lived with my partner in England for the last 12 years at his solely owned house.

Although I was born in Spain I have never considered my domicile position and I do not intend to make a claim on my tax return to use 'remittance basis'as this is a complicated area and and I do not think this is worth for the small tax saving. My last year's P60 certificate accounts for a total of £34.076. This year I have taken one year's maternity leave and I will receive 9 month statutory maternity pay from my employer.

I have recently sold my first and only property, a furnished flat in Switzerland, which has been used for my own personal use for about 1 month each year. I do not have utility bills nor bank statements delivered to the property address as I have used online banking. However, I am able to demonstrate that I bought furniture and furnishings for the property. I have kept receipts that prove that bulky furniture was delivered to me to the property address under my name. Also, I have proof of visitor's tax paid in the form of a fixed annual sum, during stays 1-14 March & 18-31 May 2009. This is obligatory for owners of accommodation.

The flat was bought in April 2006 for 286000 SFr and sold in August 2009 for 319000 SFr. Legal fees were 2545.65 SFr and estate agent fees were 12500 SFr leaving a net profit of 17955 SFr. I have not owned any other properties. I have not made any formal elections for any property to be my Principal Place of Residence (PPR). As HMRC does not have any record of nominated properties, can this property be determined to be my PPR for the last 4 years and qualify for exemption from 18% CGT?

I keep 4000 SFr worth of receipts of the furniture bought in Switzerland and added-value home improvement costs. As the flat was sold furnished, could I offset this cost from the net profit?

If my situation does not qualify for exemption from CGT, this is my next question. I intend to buy a property with my partner in the UK soon. If all proceeds of sale of the flat in Switzerland goes towards the new home in the UK, then do I have to pay capital gains tax, regardless of delay between selling the first property and buying the second one?

I have made a profit on the exchange rate (£37.714 on the purchase price). Am I liable to capital gains tax in the UK on the exchange rate gain? Will I be taxed at the sterling equivalent of the gain in Swiss Francs or the total sterling gain? How is the exchange rate applied? Note: exchange rates published on HMRC website are 2.27 SFr/£ for April 2006 and 1.75SFr/£ for August 2009.

In addition, I have sold some shares and realized a capital loss of £4145 in order to set off share losses against gains of the same year. I still own some shares with a loss of £1317.75 which I could not sell because unfortunately, the dealing charges for these transactions exceed the funds raised. Can I claim the loss of these worthless shares which I was unable to sell?

The last information which might complicate my tax situation is the fact that although in practice the property was mine, on paper it was not registered in my name in the land registry. Any transfer of a property title to a non-Swiss resident requires an authorisation from the Swiss government. The notarised deed I signed with the developers under the supervision of a qualified notary, was subject to a permit defined by "Lex Koller" (the federal law on non-Swiss residents purchasing property in Switzerland).

The notary then applies to the relevant cantonal authority for an authorisation to purchase on behalf of the buyer. . In my town it usually took about 5 months. Unfortunately, the rules for the allocation of the annual quota of permits changed in November 2007, which resulted in a long waiting list.

After 3 years of waiting for an authorization, I received a letter from the land registry to inform me that the estimated waiting time was between 5 and 10 years from the signature of the deed of sale. This was unacceptable and risky so I agreed with the developers to sell the flat to a Swiss national as soon as possible. Will this information change/affect my tax situation?

The property was bought in good faith with no intention of making a profit as no re-sale is allowed during 10 years following transfer of title, in the canton Valais.

Would you be happy to act on my behalf? How is you commission charged?

Answer:

To calculate the capital gain on the property you would translate the proceeds to sterling at the date of disposal and the acquisition cost at the date of acquisition.

On a rough calculation this arrives at:

Proceeds = £162,285 Cost = (£125,995) Other costs (assuming incurred on disposal) = (£3,597)

This arrives at a capital gain of around £32,700.

You would have the annual exemption to offset which would reduce this to £22,600 and the current CGT charge would be around £4,000.

In terms of principal private residence ('PPR') relief, this is available against a property that is your main residence. You could not make a PPR nomination as you need to have at least 2 residences for that. In your case you live in the UK property with your partner. You need to assess whether that is your residence for tax purposes, as if it is this would be your main residence.

In order for the property to be your residence you need to have some degree of beneficial interest in it. If it is solely owned by your husband and you have no rights of occupation and no tenancy etc occupation may be only under a licence. If that was the case then it would not be a residence.

In terms of the foreign property in order for it to be a residence there needs to be some degree of regular occupation. If it was occupied on a regular basis you may be able to argue it was your residence, and if there was no UK residence the foreign property would then qualify as a main residence and for some PPR relief.

This is however something that may be looked at in detail by HMRC (although if the gain was fully covered by PPR relief it would not in any case need to be declared on the tax return).

If the property was sole furnished ideally you should look to allocate some of the proceeds to the furnishings which would usually be free of CGT (if bought and sold for less than £6,000).

In terms of your other question the fact that the proceeds are being used on a UK property is irrelevant and would not allow any capital gain on the overseas property to be deferred.

In terms of the title HMRC would look to who held the beneficial interest in the property (ie who had the 'risks and rewards of ownership). If you could dictate how the property was dealt with and received the disposal proceeds you should be the beneficial owner for UK CGT purposes.

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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