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Overseas home owners feel the pinch

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08/03/2013
The falling value of the pound means that the cost of running an overseas property has increased and those wishing to sell face a rising capital gains tax bill.

Because UK capital gains tax is calculated on the basis of proceeds less cost, expressed in sterling terms at the point of purchase and sale, home owners could find themselves paying capital gains tax on a sale, even if the property value has not increased, says accountants at Baker Tilly.
 
“Take a property bought for €250,000 at last August’s rate. In Sterling terms the cost was £195,000.

“A sale now, for the same Euro value, and therefore no real gain, would mean Sterling proceeds of £219,000, giving a taxable gain of £26,000.

“This is even if the money stays abroad or is used to repay a mortgage. That should make anyone thinking of offloading a property, which is becoming too expensive to run, think twice.”
 
With this month seeing HMRC targeting UK residents with second homes, advisers with clients in this position need to consider what planning can be undertaken to reduce the tax.

According to Baker Tilly ensuring the property is sold in joint names with a spouse or civil partner to maximise reliefs and/or lower rates of tax is essential. Taxes in the local jurisdiction should also be considered.

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