QUESTION: I lived in Belfast up until my retirement in 2010 and I have lived in Donegal since then. I retained some property in Belfast acquired on my retirement, which I intend to sell, a residential investment property and a commercial building. I also own a third-share of a company which owns commercial property which I also intend to sell as well as a 10 per cent stake in a company that owns several residential properties. I have some old capital losses made in 2005 when I was living in the UK. As I am non-UK resident, can I avoid paying capital gains tax when I sell the two properties and the company shares?
ANSWER: In April 2015, the scope of Capital Gains Tax (CGT) for non-residents was extended to include residential investment property. Previously, a non-resident individual’s exposure to CGT was limited to disposals of assets connected with a trade that he or she was carrying on in the UK. In addition, with effect from April 2019, CGT for non-residents has been expanded to include disposal of commercial property investments and disposal of properties owned via indirect vehicles such as a limited company.
To calculate your CGT liability, you need to ascertain the market value of the residential property as of April 2015 and the commercial property as of April 2019. This can be used as your base cost for disposal, or you can use the original cost which you would do if higher. Alternatively in relation to the residential property, you can work out the gain and time apportion it over 12 years (2010-2022) and exclude 5/12ths in relation to the period pre-April 2015.
The position in relation to the 1/3rd interest in the property investment company is different. When you dispose of these shares, you will be chargeable to CGT only if at least 75 per cent of the value of the shares derives from the company’s ownership of UK land and you own at least a 25 per cent stake in the company. You seem to fall within both tests.
Note that your per cent ownership of the company shares is aggregated with your parents, children, and spouse. In calculating the gain on the sale of the shares, you are allowed to use the April 2019 market value of the shares in computing the gain. Conversely, the 10 per cent stake in the company owning residential properties will fall outside UK CGT unless at least 15 per cent of the company is owned by your spouse/children or parents/grandparents.
The final matter to consider is your ability to relieve the historic capital losses that you made. To determine if you can utilise these losses, a notional exercise must be undertaken which considers whether if the disposal that triggered the loss had indeed triggered a gain, would that gain have been taxable?
In your case the answer is yes because at the time the loss was made (2005) you were living in the UK and would have been subject to UK CGT on the gain. This means that you can now access the old losses as a non-resident. HMRC will expect that you notified them of the loss within four tax years of the crystallisation of the loss.
As a non-resident, HMRC require a 60-day return even if no tax is due or indeed a loss arises. Finally, you should be aware that and CGT due on UK property sales must also be paid within 60 days of the disposal of the property.
:: Paddy Harty (p.harty@fpmaab.com) is partner at FPM Accountants (www.fpmaab.com). The advice in this column is specific to the facts surrounding the question posed. Neither the Irish News nor the contributors accept any liability for any direct or indirect loss arising from any reliance placed on replies.
