[Mike & Nicola]

Hi there, I have a house back in the UK which is on a fixed term mortgage for another year and a bit. The plan was and still is(ish) to keep the house back in the UK as a long term investment, but also buy a home here in NZ. The UK rent covers the UK mortgage etc and some, no issues with tenants etc...

But with inflated house prices (in Auckland esp) and high interest rates, buying a house in an area we love, and having a life after monthly mortgage repayments seems pretty unlikely at the moment. The temptation is always there to sell the UK house to enable us to put a big deposit down here, but I just dont trust the NZ economy or housing market at the moment.

I heard there are tax issues with having a house back in the UK when you are resident in another country for a certain amount of years ie liable for capital gains on my UK house after being out of the country for 5 yrs??? Does anyone know if this is so? If so, how does that work? Would I be liable for caps gains for the value of the house when I purchased it, or the value of the house when I left the Uk, or after the 5 yr period?

Basically, does it make financial sense for me to sell the property when my fixed term is up in a year and a bit (we'd have been in NZ just over 3 yrs then)? Also has anyone had any experience of selling a property whilst overseas? I'm not envisaging any positive stories on that front!!!

Cheers,

Mike

[Mike & Nicola]

Hi there, having asked a few accountant mates back in the UK, thought I'd post this if anyone else was in the same boat.

In summary, looks as though you can get away with Caps Gain Tax if you become domiciled in NZ after 5yrs of leaving the UK.

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This form seems to indicate that you are not liable to CGT if not resident, ordinarily resident and not domiciled which is what you probably fall under.
http://www.hmrc.gov.uk/worksheets/sa109-notes.pdf

Main Revenue help sheets can be found at:
http://www.hmrc.gov.uk/sa/forms/net-06-07.htm

If you have a number of questions I would call the revenue as this is a pretty complicated area and I haven't dealt in personal tax for nearly 10 years so not totally up to date.

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Here's some basic advice with quite a few 'buts' in it. Seems as though if you stay more than 5 years in NZ, you won't pay any capital gains tax in UK (but maybe in NZ). Therefore my take on it (probably misguided!) is that there is no rush to sell.

Hope the below makes sense, but let me know if you need clarification.


Not easy to say how long it works for, good and bad news below - may be possible to avoid UK capital gains tax altogether.

Assuming they are taxable in the UK, their Principle Private Residence (PPR) is exempt but gains are deemed to accrue evenly over time and are apportioned between exempt and chargeable (i.e. let periods) tranches.

If let, part of the PPR exemption is lost but very basically if the gain in the let period is less than £40k there may be no capital gains tax. (i.e. have a house for ten years and let it out for 3 years, the gain over ten years is 100k - so gain during let period is £30k and maybe no tax payable)

But final 3 years of ownership always exempt, and

The following periods of absence are also exempt, but won't apply unless they move back to the UK and live in the house before selling:

a 3 years for any reason
b up to 4 years where required by a UK contract of employment to work elsewhere, and
c any period where the duties of employment require you to live abroad

BUT this is only if the home is PPR both before and after the absence or absences. If exceeded only excess becomes taxable

If any gain is chargeable it still qualifies for taper relief

BUT may not be taxable at all if your friend never comes back to the UK or at least stays out of the UK (apart from hols) for 5 complete tax years (and sells home in the period when non-resident) no gains are taxable in UK anyway - they will probably be taxed in NZ.