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Take tax advice before returning to UK

The complex Capital Gains Tax rules for non-residents show the dangers of not taking advice before returning to the UK for one taxpayer with a London residential property, a Tax Discussion Group hears.

October 2018

Returning from the summer break, the Tax Discussion Groups (TDG) discussed a number of principle private residence relief cases that concerned the taxation of UK and overseas property gains. One of the queries raised emphasised the considerable changes that have arisen over the past couple of years for tax payers who return to the UK realising their gains on UK residential property. Moreover, the impact of those tax changes can be particularly penal.

In one of the cases discussed, a client had left the UK in 2007 to work overseas and returned as a tax resident from April 2018. The client had acquired an interest in a London property from his wife’s parents in 2006 and had not occupied the property as a main residence, either before departure or afterwards.

The discussion concerned the Capital Gains Tax (CGT) treatment that would apply to the London property. Prior to the introduction of CGT for non-residents, such gains would not have been taxable if the property had been sold prior to returning to the UK.

Even after the extension of the CGT legislation to UK residential gains realised by non-residents, it would have been possible for the tax payer to have rebased his overseas gains to their market value at 5 April 2015. While this imposed UK tax reporting, and additionally potential tax liabilities on non-residents, a rebasing election often results in a substantial reduction in the CGT payable on the disposal where the tax payer is non-resident in the period.

Sadly, for the client involved, who had returned to the UK as a tax resident before selling the London property, and without the benefit of deemed occupation as their principle private residence during their time working overseas, it was concluded that the gains arising on the disposal of the property would be taxable under the normal computational rules.

In the discussions it was noted that this case emphasises the need to take UK tax advice prior to the return to the UK as a tax payer, as valuable relief available for non-residents will be lost upon return to the UK.

Each month (with the exception of July and August) the Tax Discussion Groups (TDG) in Croydon & South East London meet to discuss client tax issues on a no-names basis. These meetings are free to attend & normally cover over a dozen tax issues raised by those attending.

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