French resident, 2nd home in the UK >>>> implications on capital gains tax

[tasng4]

I am a UK citizen who now lives permanently in France. We are registered with the french tax authorities and pay (or not pay because we are below the thresholds) french tax. Our primary residence is in France.

However I own a 1/2 share of a house in the UK, WE have spoken to the lady who prepares our french tax submission and she advises, that when we come to sell the UK house the french tax authorities will not be interested in this sale in terms of capital gains tax. However I do not know whether I will be subject to capital gains tax in the UK as we are non resident there and do not pay taxes in the UK,

Does anyone have any experience of this please, and is there anything more I can do to avoid or minimise the amount of capital gains tax payable in the UK?

[Dave&Olive]

hi ok

              Easy one this ....... just ask your local M.P.  none of them have paid CGtax for years .

                                Dave

[Will]

To give a sensible answer, rather than a facetious one, it would be necessary to know whether or not the second home in Britain is available solely for your use - e.g. not rented out, how long you have owned it, and whether or not it has been your principal residence in recent years. Your remark about a 'half share' might be innocent enough but it does ring alarm bells.

Remember that even if CGT is payable, it is payable only on the gain, and in UK there is quite a generous allowance for each tax year below which capital gains are not taxable

[tasng4]

Dave - How true, If Joe Public did half of what they've done we'd all be in gaol.

Will - It's not my principal my Mum lives in the house rent free all the time, I own it with my sister, we've owned it for 3 years.

My Mum transferred the house into our names 3 years ago.

Hope this helps.

[parsnips]

[quote user="tasng4"]I am a UK citizen who now lives permanently in France. We are registered with the french tax authorities and pay (or not pay because we are below the thresholds) french tax. Our primary residence is in France.

However I own a 1/2 share of a house in the UK, WE have spoken to the lady who prepares our french tax submission and she advises, that when we come to sell the UK house the french tax authorities will not be interested in this sale in terms of capital gains tax. However I do not know whether I will be subject to capital gains tax in the UK as we are non resident there and do not pay taxes in the UK,

Does anyone have any experience of this please, and is there anything more I can do to avoid or minimise the amount of capital gains tax payable in the UK?[/quote]

Hi,

    As a non-resident you are not liable to CGT in the UK on a house sale. At the moment you are not liable in France either, but a new treaty which is due to come into force soon (I have seen 01/01/2010 quoted) will allow France to tax any such gains under french rules. The main allowance in France is that after you have owned the property for 5 years , the taxable gain is reduced by 10% each year until, when you have owned it for 15 years there is no CGT liability.

     If you become UK resident again within 5 years of the sale you may be liable to UK CGT.     

[Will]

From what you say, the UK house may well be subject to CGT in UK if you sold it. You are likely to escape liability because you have been out of the country for long enough to be considered 'non-resident' rather than one of the intermediate categories that exist in UK but not in France, such as 'ordinarily resident but non-resident'. If your sister is UK tax resident and you are not, this is likely to complicate the issue.

It would be well worth taking professional advice because the distinction between residence and domicile, which is reasonably clear-cut in UK but less so in France might come into play in your case. Because of the latest double taxation issues parsnips mentions you need to find somebody knowledgeable about both UK and French taxation. In fact there could be inheritance tax implications too, so it is definitely worth consulting an expert.

If you want a bit of guidance before taking advice (or if you want proof of what a can of worms this can be [;-)] ) then check

http://www.hmrc.gov.uk/cnr/res-dom-tax-amends.htm 

But do bear in mind this is only the UK end of things; French tax and the implications of the double taxation agreements merely complicate the issue further.

[dr orloff]

The lady who prepares your tax return is clearly not qualified to give you tax advice.

If you stay away from the UK for more than five full tax years then, upon taking up UK residency again, you won't have any UK CGT implications on UK property disposed of within this period.

There will be French tax implications once the new treaty is implemented (2010 very likely) - your UK property will be subject to French tax (potentially ouch). So unless you have owned it for a lot longer or the house is sold without much gain (a distinct possibility with current conditions) then you will need to plan for this.

Much really depends on what your intentions are regarding future ownership of the house and whether you are prepared to make decisions about your life based on tax planniong or whether you would just pay whatever tax is generated by your personal circumstances.

I have an observation regarding the transfer of ownership of the house. As your mother lives there rent free then this could well be a gift with reservation of benefit for inheritance tax purposes. In which event the seven year rule would not commence from the date of transfer.

[Russethouse]

  Could it be that the house was signed over to the OP and sister in the hope of avoiding the property being sold for care home fees in the event the mother should need such care ?  ( Isn't the time scale 7 years on this ?) In which case the value of the house  would all be profit wouldn't it ?