Boox-Newsletter-Summer-2018-spreadsFV

A place
in the
sun…
…but what are the
tax implications?
Have you ever watched “A Place in the Sun” and been green with envy?
Most of us dream about having a bolthole in sunnier climes to escape to.
But for those lucky enough to be in a position to make it a reality - what are
the tax implications?
Spain, France and Portugal
are some of the favourite
destinations for Brits
buying homes abroad.
UK residents buying property abroad typically do so
to have a holiday home, to make a rental income when
they are not using it or in anticipation of retiring to their
destination of choice.
Capital Gains Tax
Although the property is outside of the UK, if you are
a UK resident, it still counts as a chargeable asset for
capital gains tax (CGT) purposes, so any gain made on
disposing of the property (eg. from sale or gift), will be
subject to a CGT charge at the usual rates.
However, if someone splits their time between their home
in the UK and their overseas pad, it can be argued that
both properties qualify as residences. If this is the case
you have to elect which of the properties is the main
residence upon which private residence (and lettings)
relief is applied.
This election needs to be lodged with HMRC within two
years of owning two residences (not just 2 properties).
Your accountant will be able to advise you which
residence will provide the most efficiency in terms of tax
relief should you decide to dispose of it. This will depend
on several factors including current value and any
rental income.
It is worth bearing in mind that you must spend at least
90 days in your overseas home during the tax year for
it to qualify as a residence. Therefore it is unlikely that a
holiday home would qualify for any tax relief (unless you
take a lot of holidays!), other than the annual exempt
amount (£11,300 for the 2017 /18 tax year). This rule also
now equally applies to a UK Cited property.
Retiring abroad
If you are planning to see out your autumn years in the
sunshine, it is advisable to sell up your UK home before
moving abroad. While you still have a UK residence, you
do not incur any CGT charge. So long as you sell up
within 18 months of relocating, you will still avoid this
charge, but after that your UK home no longer qualifies
as your main residence and you will have to pay a nonresident
CGT charge.
If you have a second home abroad, then although it may
be nominated as a main home and a reduction possibly
obtained in the UK tax liability, the taxation position in
the overseas country would also need to be considered.
Inheritance Tax and Wills
Inheritance tax (IHT) is based on domicile rather than
residence status, so simply moving abroad will not
remove UK IHT liability (on either the UK or overseas
home). It is also likely that the country in which your
property is located will also levy its own version of IHT.
In addition to this, “forced heirship” rules may apply. This
is where spouses and children of a deceased person are
automatically entitled to a specific amount of shares in
the estate. This means that you may not be free to leave
property abroad to whomever you wish in your will. You
may need a separate will dealing exclusively with the
bequeathal of the overseas property.
Best practice is to seek the advice of your accountant
or financial advisor before buying or selling an
overseas property.
people • advice • technology newsletter summer 2018 • boox.co.uk 5