Bay Tree Lodge Gower Road Weybridge Surrey KT13 0HA Telephone: 01932 508631 Email:
[email protected] Website: www.kwsteward.com
Mr P & Mrs C Charlemagne 6 Sears Hill Road Smiths Bermuda FL 06 19th May 2015 Dear Mr & Mrs Charlemagne, As requested by you, we have prepared the below information to assist you with your decision as to whether to sell your UK rental property, 5 Davidson Gardens. Background: You are a married couple with 2 children. You have lived in Bermuda since 2002. Claire is UK domiciled and Peter is St Lucian. You jointly purchased a rental property in London in 2010, and have been filing UK tax returns for the rental income. Claire is a head teacher and is leaving her job in Bermuda to come back to the UK, starting a new head teacher job in the UK on 1st September. Peter and the children are moving to the UK at the same time. He is planning to be a student. Claire’s work in Bermuda ends at the end of the summer term although her work contract runs until 31st August. The current intention is for the whole family to arrive in the UK on 20th July 2015. Claire intends to visit the UK for one week prior to this to familiarise herself with her new school. Recent dates spent in the UK: Claire: 16th July through 10th August 2013 – 25 days 21st Oct through 26th Oct 2013 – 5 days 26th Dec 2013 through 10th Jan 2014 – 15 days 27th April through 30th April 2015 – 4 days Peter: 28th Jul through 10th August 2013 – 13 days 26th Dec 2013 through 10th Jan 2014 – 15 days
Objective: You wish to know whether you are able to sell the property whilst you are still non-resident in the UK and therefore only be liable to capital gains tax on the gains made since 5 th April 2015, rather than on the entire gain.
Director William Steward FCA
KW Steward Ltd registered in England and Wales. Registration number 8108565. Registered Office: Bay Tree Lodge Gower Road Weybridge Surrey KT13 0HA. VAT registration number 137 7730 93
Application of the Statutory Residence Test:
Year ended 5th April
2014
Claire 2015
Automatic UK test 1 Automatic overseas test 1 Automatic overseas test 2
(Just.
2016 (pre July for ties purposes)
Peter 2015
2016 (pre July for ties purposes)
0
0
0
0
0
0
45 days exactly)
Automatic overseas test 3 Automatic UK test 2 Automatic UK test 3 Family tie? Accommodation 0 0 0 tie Work tie? 90 day tie? Country tie? Number of ties 0 0 0 Sufficient ties test Residence Bermuda Bermuda UK conclusion 2016 Split year No – home remains in St Lucia – Case 4 2016 Split year Yes – UK part of year starts when – Claire starts work Case 5 ** 2016 Split year No – not resident in any of – previous 4 tax years Case 6 2016 Split year No – partner does not meet case 6 – Case 7 2016 Split year Yes – from the date there is a – home in the UK – this is likely to Case 8* be date of arrival in UK Case Case with earlier date is likely to preference be Case 8, unless perhaps hotel accommodation is used until after Claire starts work Director William Steward FCA
2014
Bermuda
Bermuda
UK
No – home remains in St Lucia No – no UK work as yet, could be met if a full time job is found No – not resident in any of previous 4 tax years No – partner does not meet case 6 Yes – from the date there is a home in the UK – this is likely to be date of arrival in UK Only case 8 applies
KW Steward Ltd registered in England and Wales. Registration number 8108565. Registered Office: Bay Tree Lodge Gower Road Weybridge Surrey KT13 0HA. VAT registration number 137 7730 93
* Notes related to Case 5, “Starting to work full time in the UK”: 1. The case 5 date should be 1st September, Claire’s contract start date. It could be considered to be earlier if she works say the week before 1st September in preparation for the start of term, however if the case 8 date is earlier than this, the case 5 date will not be relevant. ** Notes related to Case 8, “Starting to have a home in the UK”: 2. You must remain UK resident in the following tax year, ending 5 th April 2017 for this case to apply. 3. 5 Davidson Gardens (the rental property) is not available for use by the family. Provided it remains let, or available to let commercially, it will not be a home. 4. Example A8 provides that staying in hotels or “temporary rented accommodation” prior to a property purchase or long-term rental agreement may not be considered a home. Once a habitable property is available it will be a home. Example A2 provides that staying with family/friends will be a home.
Conclusions: Both Claire and Peter will qualify for split year treatment under case 8. They will be UK resident from the date they have a home in the UK, unless that date is later than 1st September, in which case for Claire, case 5 will take precedence and Claire will be UK resident on 1st September. The aim is to sell 5 Davidson Gardens whilst neither Peter nor Claire are UK resident, such that only the portion of the capital gain arising since 5th April 2015 is subject to capital gains tax. In order to achieve this aim, they must have exchanged contracts prior to their having a home in the UK. Having a home in the UK means buying a property that is habitable, entering a rental contract for a property or staying with relatives. In order to avoid being deemed to have a home in the UK, Peter and Claire must only stay in hotels or temporary accommodation until such time as contracts have been exchanged on the property sale. Regardless of the UK home status, Claire will be deemed UK resident at the start of her employment contract on 1st September.
Director William Steward FCA
KW Steward Ltd registered in England and Wales. Registration number 8108565. Registered Office: Bay Tree Lodge Gower Road Weybridge Surrey KT13 0HA. VAT registration number 137 7730 93
The one week trip planned by Claire will have no impact provided it is completed at least 31 days prior to Claire starting work full time in the UK, as this will be deemed a “significant break” in the work and as such the third automatic UK test will not be triggered until full time work begins.
Alternative options: If the above proves impossible, there are some planning points you could consider but they are not very practical and will involve some cost and inconvenience. They need detailed research, planning and advice before being implemented, but I outline them here for completeness:
You could transfer beneficial ownership of the property into a non-resident company (one that is incorporated and managed and controlled outside the UK), while not resident in the UK. That would be a disposal for CGT purposes. You would need to make sure you avoid UK Stamp Duty, so will need specialist advice on that. You would also need a lawyer to draw up a Declaration of Trust. Claire could give her share to Peter and he stays in Bermuda until after 5 April or comes to the UK but does not have a home here. That would mean Claire not having a home here either as her home would be considered his as well, even if he never went there.
Calculation of capital gains: Assuming you achieve exchange of contracts whilst non-resident, there is a choice of methods for calculating capital gains. This can either be done by obtaining a valuation as at 5th April 2015 and deducting this from the eventual sale price, or it can be done by apportioning the whole gain from when you purchased it until you sell it. E.g. if you owned it for 60 months in total, 3 months being post-5th April 2015, you would be taxed on 3/60ths of the gain. The most beneficial method will depend on the actual amounts, date of sale and April 2015 valuation. Disposal costs will be deductible (e.g. estate agents and solicitor’s fees), and you will each be entitled to an annual exemption of £11,100. This could mean the net capital gains bill is fairly small or possibly even zero. I can assist you with this further when you have an idea of numbers.
Director William Steward FCA
KW Steward Ltd registered in England and Wales. Registration number 8108565. Registered Office: Bay Tree Lodge Gower Road Weybridge Surrey KT13 0HA. VAT registration number 137 7730 93
In Summary: Provided contracts have been exchanged in the sale of the property prior to your having a home in the UK (staying with relatives would be considered a home), and prior to either of you starting full time work in the UK, you will be considered nonresident for the purposes of capital gain tax on the sale of 5 Davidson Gardens and you will only be taxed on gains made after 5th April 2015, which are likely to be small. If the contracts are exchanged after you have a home in the UK, or have started full time work, you will be liable to capital gains tax on the entire gain.
I do hope this is of some help to you. Please do not hesitate to contact me should you have any questions.
Yours sincerely,
William Steward BEng (Hons) FCA Director, KW Steward Ltd
Director William Steward FCA
KW Steward Ltd registered in England and Wales. Registration number 8108565. Registered Office: Bay Tree Lodge Gower Road Weybridge Surrey KT13 0HA. VAT registration number 137 7730 93
