Avoiding CGT

[Northender]

My wife and I have owned a second home in France for 18 years.We are both retired and face the possibility of having to sell our French house in the future , as logistics will inevitably start to take their toll.

The situation regarding CGT (as UK taxpayers), as we see it , is 18% of the gain less the couples allowance (around £20k) making a tax bill in region of £54k.

If we decided to sell up here in the UK and move permanently to France , are we right in thinking there would be no CGT? (UK and France)

If so the next question is how long would we have to reside in France before considering moving back to the UK without incuring the wrath of the tax authorities?

I know this may seem a little cynical to some members , but we are only trying to consider legal options available to us.

[Pickles]

Just looking at part of the issue for a minute: if you stay in the UK, the tax rate that you pay HMRC depends on your taxable income.

From the HMRC Website:

"For gains made on or after 23 June 2010, individuals need to work out

their total taxable income before working out which Capital Gains Tax

rate to use.

1. First work out your taxable income by deducting any tax-free allowances
   and reliefs that you are entitled to.
2. Next see how much of your basic rate band is already being used against
   your taxable income. The maximum basic rate band for 2010-11 is £37,400.
3. Allocate any remaining basic rate band first against gains that qualify
   for Entrepreneurs' Relief - these are charged at 10 per cent.
4. Next allocate any remaining basic rate band against your other gains,
   these are charged at 18 per cent.
5. Any remaining gains above the basic rate band are charged at 28 per
   cent."

Note that to compute the gain before allowances, you must use the exchange rates on the date of purchase and date of sale respectively to calculate the gain in sterling - this means that some of your gain will be purely due to exchange rate differences. If you think that your tax bill at 18% is 54K, then you must be looking at a gain of £320K - in which case a sizeable chunk of that (ie at LEAST £283K, assuming that you have no taxable income in the UK) will be taxed at 28% rather than 18% in the UK.

Regards

Pickles

[Northender]

Thanks for that Pickles.

It seems worse than we expected (CGT) if we were to sell our French home.

Which makes the other option of selling our UK home and moving to France a more attractive proposition.

The worry would be if we decided at some stage to return to the UK would there be retribution?

[parsnips]

[quote user="Northender"]My wife and I have owned a second home in France for 18 years.We are both retired and face the possibility of having to sell our French house in the future , as logistics will inevitably start to take their toll.

The situation regarding CGT (as UK taxpayers), as we see it , is 18% of the gain less the couples allowance (around £20k) making a tax bill in region of £54k.

If we decided to sell up here in the UK and move permanently to France , are we right in thinking there would be no CGT? (UK and France)

If so the next question is how long would we have to reside in France before considering moving back to the UK without incuring the wrath of the tax authorities?

I know this may seem a little cynical to some members , but we are only trying to consider legal options available to us.[/quote]

Hi,

    As I understand it ,if your UK house is your principal residence , you are not liable to CGT on any gains you make on selling it.

If you then move to your french house (as principal residence) then in theory you only have to live in it one day to be exempt---however ,as an immigrant you really need to enter the french tax system and make at least one declaration from the french address to establish your resident status before selling. You can check this with the HMRC --best to send them an email. 

Edit--I've just looked at the HMRC site and, as I see it, you will qualify for "private residence relief" and pay nothing in the UK (if you live in the house up to the sale.

         Your second home in france will also be exempt in France as you have owned it more than 15years (even if you sell it while remaining UK resident--the catch here is as UK resident you would be liable to UK CGT on the french sale).

[AnOther]

[quote user="Northender"]I know this may seem a little cynical to some members, but we are only trying to consider legal options available to us.[/quote]Not cynical at all, sensible and necessary tax planning I'd call it, especially with significant sums at stake.

Why give the grasping taxman a single penny (or cent) you don't absolutely have to [;-)]

Bonne chance

[Gardener]

Unless there is a tax reason or the OP really wants to, does he have to sell his house in the UK?

If his stay in France is going to be a relatively short one with every intention of going back to the UK, could he hold onto his house without it causing any problems?

[Pickles]

[quote user="Gardener"]Unless there is a tax reason or the OP really wants to, does he have to sell his house in the UK?

If his stay in France is going to be a relatively short one with every intention of going back to the UK, could he hold onto his house without it causing any problems?[/quote]

Hmmm ... the problem would be convincing HMRC that you really HAVE moved to France if the UK house were to be retained. I suspect that in that event (ie the UK house being retained) HMRC would apportion the gain on the sale of the French property and expect you to pay CGT on the proportion of the gain made whilst the French house was a holiday home.

Regards

Pickles

[Albert the InfoGipsy]

Possibly letting the UK house (not to a relative, for preference) would be enough to convince the tax man.

I think the big question is 'would I want to move anyway?' If the French house didn't exist would the OP want to sell up and downsize, or whatever?

[Pickles]

[quote user="Albert the InfoGipsy"]Possibly letting the UK house (not to a relative, for preference) would be enough to convince the tax man.[/quote]

I'm afraid I think that would actually make it MORE likely that they would then apportion the capital gain on the French house. I think that the existence of the UK house as the main residence for so long is an issue wrt the CGT on the French property. Getting rid of the UK property is at least a clear signal of intentions...

[quote user="Albert the InfoGipsy"]I think the big question is 'would I want to move anyway?' If the French house didn't exist would the OP want to sell up and downsize, or whatever?[/quote]

Yes: however there is a substantial, powerful financial incentive in this case, if by moving over CGT is avoided, which clouds the issue somewhat. On the other hand, as you indicate, the case against moving over needs to be considered very carefully.

Regards

Pickles

[LEO]

Hi Northender, your website link doesn't work as you have forgotten the www bit on your user profile page .

it should read ;

http://www.lagaillard.talktalk.net

Perhaps the fact that your French house is producing income is a relevant factor.

Another relevant factor is both your ages as, your liability is drastically reduced when you reach state pension age ,as far as I am aware.

[Northender]

Thanks for the info about the website.

The pensionable age issue is only relevent in France I think.

The major concern we have is CGT payable in the UK.

[Northender]

Thanks also to everyone else for their much appreciated input.

I think as things stand at the moment regarding CGT , if we want to sell our French property , selling our UK home and moving over to France for a "period" would be the best financial solution. If after a certain length of time we found that France was not for us we could re-purchase in the UK after selling our French home.

The fact that "downsizing" in the UK is an option that we have considered makes this even more appealing.