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CGT on overseas property?

Tax | Capital Gains Tax Helpful? 2

Asked by Lanuvio, submitted 13 December 2011.

Open Quote My wife and I purchased a property in Italy in 2004 while we were living overseas due to a work posting.
We had been overseas since 2001 and stayed overseas until 2009.
We only returned to the Uk for <20 days per year. The company I woprked for used a specialist company to calcualte my tax position, although I was subject to hypothetical tax equalisation.

Sold the property in May 2010.
To calculate the profit I understand that we use the FX rate at time of buying Vs time of selling (sadly). Also, we can allow for any costs that improved the property...

To calculate the CGT:
Q1.Can we take into account that for the majority time we were not UK tax residents when calculating the taxable profit of does it just simply all fall due as we had returned to the UK ?

Q2.Assuming that as it was jointly owned we can allowances for both my wife and I ?

Q3. Any other araes we need to be aware of ?

End Quote

Answered by Justin on 15 August 2012

Sorry for the delay in ansswering (I realise this might be too late).

Unfortunately HMRC doesn't reduce capital gains tax liabilities if you've been non-resident for some of the period of ownership.

Had you sold the property before returning to the UK (and once again becoming a UK tax resident) then it would have escaped UK capital gains tax (although whether the Italian authorities would want to tax you is another matter). Even if a property is sold in the same tax year you return, it can still avoid CGT provided the sale was before you moved back to the UK (under a provision called 'ESC D2').

But as you sold it after becoming UK tax resident HMRC will treat the gain as taxable.

On the slightly brighter side, because it was owned jointly both of you can use your annual CGT allowance - which was £10,100 for the 2010/11 tax year.

However, you might be able to avoid some or all of the tax on gains if the Italian property was your main residence for at least some of the time you owned it.

In simple terms, the final 3 years that you own a property will be treated as if you lived there, even if you didn't, as long as the property has been your only or main home at some time during the period that you owned it. As you owned the property for more than 3 years then proportional relief will be given for the time it was your main residence plus the final 3 years, divided by the total period of ownership. You can view more details in my answer to this question.

Fingers crossed you can avoid a tax bill.

Please note this answer does not constitute a recommendation or financial advice and should not be relied upon when making specific investment or other financial decisions. You should always undertake your own research into whether a product or service is appropriate for your needs and, if necessary, use a qualified professional adviser.

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