TAX AND PRIMARY RESIDENCE

[ali-cat]

Hi there - Ali@ards other half here.

Having got round to finally starting to make ourselves legit here we've identified a major concern (major wobble for those who recognise me from previous posts).

I hope I already know the answer to this but want to confirm it.  We sold our house back in the UK (our primary and only residence) on 26th July this year - travelled to Charente the same day and became resident for French tax purposes on the following day (27th). The funds from the sale were paid to our soilicitor who deducted all fees and made a payment to our UK bank. The funds cleared at our UK bank on the 28th July. Given that we became liable for French tax on all income from 27th is there any possibility of the French tax authorities seeking to tax the house sale.  Hopefully the sale of a primary residence is exempt from tax (capital gains) in both jurisdictions?

Apologies for worrying unnecessarily if this is the case or if the question has been asked before.[:$]

 

 

 

[Will]

I don't think you have anything to worry about. The only thing you should be taxed on is any interest earned on your lump sum.

[cooperlola]

Did a very similar thing to you and nope, not taxed.  This was all done with the help of a French accountant so we in no way attempted to break any rules.

[Gluestick]

Most transactions date from the time that the event took place, for tax purposes: when you are actually paid has no bearing.

This has caught out many people, in the reverse sense!

For example, if selling a business, vendors often agree to defer payment of some of the funds.

Unfortunately, the tax becomes due on the date of sale!

Agreeing to accept a consideration (money or other value) at an indeterminate time in the future can be dangerous: as the tax is due from the moment the agreement is signed! This can apply to both Income and Capital taxes.

Selling your house in the UK was crystalised before you became French residents.

 

[Cassis]

Gluey, you usually talk total sense but you've lost me there!  I don't think Ali's transaction is anything other than normal.

No, you are not taxed on the sale of your UK house by the French tax authorities - only taxed on interest earned before you spend the proceeds of the sale on your French money pit. [:)]

[Gluestick]

Sorry: trying to be helpful, as usual!

Agree about the house sale: tax point is date of completion (contract). Own home, = Zero CGT.

The rest was just a Heads Up, as some people might be selling their business interests and be relying on some future payments and calculate being taxed in France on (e.g.) income and to their horror find that the UK taxman holds his hand out!

The tax liability is incurred on the date of contract: not the date of payment.

Had a client (and also old friend) caught by this as he sold his shares in a UK limited close company and then the buyer didn't pay! (Stage payments for the shares). However the CGT was due in the tax year of the sale.

Unfortunately, the sale took place just before the end of the tax year! Like late March.

In the end, we successfully managed to shift the tax liability to the next tax year and as client received less than agreed,  agreed a far lower CGT payment owing, just before the case went to trial for breach of contract. Nasty.

Hope that's clear now.

 

[Cassis]

Much clearer.  I thought maybe you'd been puffing on something illegal! [:D]

[Gluestick]

No chance. Wouldn't know how to. Sure my nieces could explain, however. [blink]

However, I will be imbibing some bottled sunshine from the Rhone, later on! [:D]

 

[Llwyncelyn]

Hi Gluestick interested in the share transfer arrangement.  Surely if shares are sold by deferred payment then your client only gets clobbered for the CGT when the funds are in his hands?  Or are you saying that the client sold the shares and with the Registrars then transferring the shares to the purchaser?  If therefore the shares 'go' to the purchaser then the only way for the vendor to get his money is by a writ for breach of contract and for a monetary basis.

Surely it might have been better to release on a proportional basis the shares as cash passes hands and thus the total amount available to the tax guys is the benefit and gain being witnessed in any given year?

In any event your client has an equitable interest at all stages in the shares?

Just interested that is all......................................

[Llwyncelyn]

Sorry Gluestick but obviously I have something that is causing me some problems.

It is a little while since I was a player in the selling of shares and thus Gordon Brown has moved mountains since the period I have been away.

Are you saying that tax is due when an agreement is signed and not when the client enjoys the benefit of the cash passing through his or her bank account?  Thus if a deferred payment is say £1m payable over three years and the gain is £500k then he gets clobbered on the £500K despite the fact that some of the gain does not arise until later years?

[Gluestick]

Perhaps the clue here was "Close" company.

Our client was one of three directors. The company was sold to a larger company.

I came into this later on, as the other two directors (who had earlier taken over my client's original company) despite the three directors holding a 30%, 30%, 30% equity holding, were in the driving seat and had instructed the auditors over the sale of the business and the tax planning.

My eventual role was to advise all three directors on the sale - which had stalled at that point - and the tax planning.

All three directors were to be employed, full time by the acquiring company, with no equity holding.

The contract of sale (which was cumbersome, originally) was eventually reduced to a straight sale of shares.

The MD of the acquired company took early advice, paid the fees and then de-instructed us. After, of course, I had carried out further investigative research. What's new. My old client stuck.

After a freak accident and a short period of sickness - with an agreed contract of employment - he was terminated: unfortunately, the three had already passed over all the shares against a forward promise to pay; against my earlier advice! By this time the old company had been wound up.

Bottom line was that my client was faced with a CGT liability, for which he had not been paid as then the value: loss of office and etc.

He sued; they settled, out of court, for less consideration, but ahead of the agreed payment schedule.

A very nice guy: too nice.

A very significant sum was involved here, BTW.

Yes, principally, a transaction, for UK tax purposes crystalises when the contract is signed. Employment is obviously different, although compensation for loss of office, redundancy etc also means an arising tax liability on the date of the agreement.

In practice, of course, one has until the January following the end of the tax year, April 5th preceding, to report and file the event and settle, although the Revenue are entitled to charge interest from the arising date less the grace period, in certain circumstances.

In the case above, I would have re-written the Mem and Arts to cede voting rights to the acquiring company - which they demanded - and retained the shares but sold them parcel by parcel against the buyer's payment schedule, for example. They didn't.

 

[Llwyncelyn]

That's sad.  Before coming here I did some contract work for a client who sold an agency insurance wise to a bigger group and the shares passed hands over a period of time.  Whilst we gave them 'control' ownership of the shares did not pass until the cash came our way.

In any event I for the clients later ended up in the High court for the two directors for there were such things as indemnities against future claims mis-selling that sort of thing..............we lost..........and then the rabbits truly came out of the hat.  It cost a fortune to resolve.

[Gluestick]

As I am often reminding my clients, "I am excellent at tax planning: but not very good at Post Event Tax Planning!"

It constantly amazes me how apparently shrewd people, despite being implored to seek advice prior to making significant decisions, don't.

Much of my work these days, is in Risk Management, if one considers it rationally.

There are viable structures and methodologies to both overcome hurdles and optimise income and wealth: all provided they are rationally planned and any reasonably complex financial situation, reduced to a series of fairly basic and simple steps.

Warranties can often be a real problem, in run offs, since it is very difficult to estimate the potential worst case downside position, and allow for it.

We had one group of clients in the early 90s insanity (estate agency) where they had gaily sold endowment mortgages to all and sundry, as a tied representative, with all the sweeteners  and over-rides then being offered. When the economy went South, as expected, mortgagers swapped for repayment options and the commission clawbacks virtually bankrupted the clients. They had no contingency plans in place for this!

 

[Llwyncelyn]

Final point Gluestick I have a client who runs a very very successful estate agency business!  I have advised him (from the legal standpoint) to acquire a business which has a successful portfolio in renting houses!  A good fit.

The client is switched on and he basically when he sells a house works out his costs on selling then the overhead then 40% for HMG and then divides the balance 50:50 and ring fences 50%.

A bit basic but you should see his house his car(s) his trappings.

Anyone who in the strong residential market that we experience and who could not make a success selling wise should come here to France for the lesson.

Once I was captain cricket wise of a well now west of england cricket club our opening bowler had with another an idea we supported him with the bank then a small listing to begin with then a public offering and now well recognised on the stock exchange.  We can all but dream.  Anyway we digress but I am sure that if we were ever to meet up we could exchange some wonderful experiences.

Now away to batten down the hatches here in Normandie against the rain and winds.

[Gluestick]

Until a few years ago, I was an External Moderator and Examiner for a university Business School, mainly at MBA level. One of the things I very much enjoyed was delivering lectures on Financial and Strategic Planning to part-time students in business themselves.

One of my Powerpoint slides is a guy in a desert, with a palmtree (so you know it's a desert!) looking lost and confused.

The caption is: "A business without a Business Plan is like a man lost in the desert without a map and a compass!"

Nuff said.

Yes, would be nice to meet up and trade war stories: our place in France is right up in the Pas de Calais, though: a long journey, sadly.

 

[hastobe]

[quote user="Gluestick"]

As I am often reminding my clients, "I am excellent at tax planning: but not very good at Post Event Tax Planning!"

It constantly amazes me how apparently shrewd people, despite being implored to seek advice prior to making significant decisions, don't.

[/quote]

LOL - so true!  The number of times I have been asked to give a contract (often 50 plus pages long) 'the once over for tax because we're signing this afternoon'!!  Or asked how we can salvage a dire tax position long after the transaction has happened...

Kathie

[Gluestick]

No names no breach of client confidentiality, but one of the best, were the clients who announced, after they had signed of course, who bought a very expensive 8 berth cruiser, twin turbo-diesel and then threw me the wonderful line, "It is tax claimable, isn't it?"

I set up a marine chartering business, toute suite and the fun thing was that they then, correctly claimed the VAT Input tax against their Output tax and not surprisingly, received an audit!

I was then cheeky enough to write off 40% of the capital value Year One under the enhanced allowances![blink]- which created an overall loss.........................

We only got away with it since they were already deeply involved in aligned business activities.

No wonder I've lost so much hair!

 

[Llwyncelyn]

Hi Gluestick on this wet and windy day here in Normandie and whilst we are gossiping.

In the good old days of 100% writing down allowances there was a client who wanted some kit on leasing.  I acted for the Bank.  It was a huge amount of money and with the kit coming from the US.  It was on the high seas as the deal was progressing.  Thus and in theory it was not in the possession of the Bank and with 30th June looming the deal seemed lost and thus the writing down allowances could not be taken into account.  Within the Bank we had four tax year ends!

The US company dealt through a Scottish sub and my client would not go for if the kit went down in the Atlantic then it was going to be a messy argument.  So I suggested an agreement with the Scottish sub supported by a bank guarantee.  Thus the Bank of Scotland guaranteed  performance by its customer, the Revenue quickly agreed (why) and everyone was happy.  Long nights of argument and then later with a deep intake of breath when it came to fees.

Still it was fun and I so miss it now semi-retired in Normandie.  I really must do something.  Some people will say to stop posting on this thread.

 

regards

[Gluestick]

Why stop posting?

Other members can hopefully glean (free![:-))]) quite valuable info herein.

Whilst I urgently wish to retire, ASAP (*Sigh*) and since my practice manager is a Spainophile, we are sort of tossing round the concept of a UK/France/Spain mixed practice to assist ex-pats in France and Spain with their tax affairs, on the basis that whilst some make a clean break, many retain certain UK assets and thereby are necessarily obligated to create an effective cross-border investment and tax strategy.

The temptation is to run as far away as fast as possible as quickly as I can!

*Big Sighs*

Leasing.............hmmm.............. reminds of Atlantic Leasing and the BIG stumble!