Announcements
We’re in read-only mode while we do some scheduled maintenance to bring you a bigger, better and brighter online community.
You can still search the site to find answers or take a look at our current top 10 questions.

ATO Community

CGT Tax on selling previous main residence in UK

Newbie

Views 7527

Replies 3

Hi,

My question is about CGT exemption for sale of a property in the UK, as per the following time line

 

Oct 2002 - as a UK resident , I purchased a property in the UK and moved in immediately

Apr 2010 - I changed to an AU permanent resident (lliving in rented accommodation), renting out the UK property

Jun 2013 - I purchased an AU property and moved into it immediately

Apr 2016 - The tennants of the UK property moved out so that it can be prepared (redecorated) for sale and put on the market (exactly 6 years of occupancy).

Oct 2016 - I sold the UK property

 

I am looking for some confirmation of my understanding of the points below around AU CGT.

1) For AU tax purposes, do I consider the UK property as purchased when I relocated to AU (based on a valuation at that point in time).

2) As the property was tennanted for exactly 6 years, am I right in thinking it has "potential" to remain fully exempt from CGT at time of sale, but only if nominated as the main residence right up to when it was sold (but see 3 below). In this scenario, I would however become liable for any capital gains on the AU house up to the time of sale of the UK property (I would need an AU valuation as of that time).

3) After the UK property sold, could the AU property then become my main residence and potentially CGT exempt for any "future" gain in value. However, I would always be liable for any capital gains on it up to that point in time.

4) If I had instead chosen to nominate the AU property as my main residence when it was first purchased, would I only get a partial CGT reduction on the UK sale, based on ratio of days that UK was my nominated main residence whilst I was in AU and the total days I was in the AU [or would it be the general 50% discount]?

 

5) when do I get a straight 50% CGT discount on the UK sale, as opposed to a partial exemption calculated on the number of days it was my main residence (in practice they amount to about the same anyway).

6) can I nominate the AU property as my main residence as soon as the UK property was sold, even though I have been living in the AU property for 3 yrs up to that point (I accept that I would still be liable for CGT gains until then).

 

I'm not asking what might be the best course of action (I will seek professional advise for this), but just if my understanding of the options available seem to be correct.

 

Thank you!

 

 

 

1 ACCEPTED SOLUTION

Accepted Solutions

Most helpful response

ATO Certified Response

Former Community Support

Replies 2

Hi Graeme,

 

Thanks for posting! We've answered your questions in the points below:

 

  1. The cost base of capital gains tax assets are made up of a number of elements, including the costs associated with acquiring the asset. We'd look at the cost of the property at the time you acquired it, rather than valuations obtained later.
  2. You may be eligible for the main residence capital gains tax exemption on the UK property for up to six years after you stopped living in it (as you used it to produce income). Please note that capital gains tax applies on the property for any period longer than 6 years of renting it out.

  3. Once the UK property stops being your main residence, you can elect the Australian property to be your new main residence.

    However, you can only have one main residence at a time – your Australian property will only have a partial main residence exemption as you will need to pay CGT for the time the UK property was your main residence.

  4. If you instead nominate the Australian property as your main residence from the day you moved in, you will be eligible for a partial CGT exemption on the UK property (for the period of time it was your main residence prior to purchasing the Australian property). You calculate the part of the capital gain that is taxable by working out:
    total capital gain made from the CGT event * by (number of days in your ownership period when the dw...

  5. There are three methods for calculating the CGT discount on the sale of an asset: 
    - The ‘other method’, which only applies where you have bought and sold the asset within 12 months
    - The ‘indexation method’, where you apply a formula to increase the elements of the cost base by the indexation factor
    - The ‘discount method', where you reduce the value of your capital gain by 50%.

Choose the method which provides the best result for you. You work out your net capital gain by taking any capital losses away from your total capital gain, and then applying the CGT discount method that you’ve selected.

If you'd like to talk to someone about how to calculate your capital gain or loss, you might choose to hire the services of a registered tax practitioner. Find tax agents and advisors in your area by search the Tax Practitioner Board register.

Hope that helps!

3 REPLIES 3

Most helpful response

ATO Certified Response

Former Community Support

Replies 2

Hi Graeme,

 

Thanks for posting! We've answered your questions in the points below:

 

  1. The cost base of capital gains tax assets are made up of a number of elements, including the costs associated with acquiring the asset. We'd look at the cost of the property at the time you acquired it, rather than valuations obtained later.
  2. You may be eligible for the main residence capital gains tax exemption on the UK property for up to six years after you stopped living in it (as you used it to produce income). Please note that capital gains tax applies on the property for any period longer than 6 years of renting it out.

  3. Once the UK property stops being your main residence, you can elect the Australian property to be your new main residence.

    However, you can only have one main residence at a time – your Australian property will only have a partial main residence exemption as you will need to pay CGT for the time the UK property was your main residence.

  4. If you instead nominate the Australian property as your main residence from the day you moved in, you will be eligible for a partial CGT exemption on the UK property (for the period of time it was your main residence prior to purchasing the Australian property). You calculate the part of the capital gain that is taxable by working out:
    total capital gain made from the CGT event * by (number of days in your ownership period when the dw...

  5. There are three methods for calculating the CGT discount on the sale of an asset: 
    - The ‘other method’, which only applies where you have bought and sold the asset within 12 months
    - The ‘indexation method’, where you apply a formula to increase the elements of the cost base by the indexation factor
    - The ‘discount method', where you reduce the value of your capital gain by 50%.

Choose the method which provides the best result for you. You work out your net capital gain by taking any capital losses away from your total capital gain, and then applying the CGT discount method that you’ve selected.

If you'd like to talk to someone about how to calculate your capital gain or loss, you might choose to hire the services of a registered tax practitioner. Find tax agents and advisors in your area by search the Tax Practitioner Board register.

Hope that helps!

Newbie

Replies 1

Hi Amanda. 

Thanks for your reply, that really helps clear things up.

 

One remaining question i have is on point 1. You indicate that in calculating the cost base, you'd look at the cost of the property at the time it was originally acquired. My previous understanding was that because I changed my residency for tax purposes on 10 April 2010, the cost base would be derived from a valuation at this point. Are you able to confirm if it is still the date of purchase that should be used?

 

In practice, there is little impact on the overall capital gain, given the valuation in 2010 was almost the same as when originally purchased (all the capital gain occurred after this time). However, I assume it would make a difference in calculating the partial capital gain applicable, given the period of ownership (and occupation) would be much longer from when first purchased and the partial gain would therefore be much less?

 

Thanks gain for your help.

 

Former Community Support

Replies 0

Hi Graeme,

 

Thanks for following up. We can only offer general information here on the Community, and the link we've provided to our guide to capital gains tax outlines how to calculate the cost base for capital gains tax purposes.

 

However, if you're not sure whether the information on our website applies to your personal situation, you can ask us to provide specific written advice by requesting a private ruling.

 

Private rulings are based on how we believe tax law applies to your circumstances - they're a free service, and we aim to reply within 28 days. You can download a copy of the application form here.

 

Thanks!