We are in the process of considering a return to the UK. We left in April 2015 and we are resident in the Philippines. If we return we plan to sell our property in the Philippines to use as payment for a property in the UK. The question is, will the money to be transferred be subject to UK tax?
Jason Porter, a director of expat financial advisers Blevins Franks, answered this question.
“The date of UK residence ceasing could be important – before or after 5 April 2015 might be material. Unfortunately, around this time there have been changes in both the tax reliefs available on main homes, and the UK’s tax residency rules.
“The transfer of money is not taxable in its own right. If you sell the property after you have resumed UK tax residence, then potentially, it will be exposed to UK tax, specifically UK capital gains tax (CGT). Even if you sell the Philippines property prior to resuming UK residence, it is still likely to be exposed to UK CGT (though exemptions could apply to eliminate any charge), as you will not have been non-UK resident for five complete tax years. If you had left before 5 April 2015, then you would need to remain non-UK resident until after 5 April 2020. If you left after 5 April 2015, then you would need to remain non-UK resident until after 5 April 2021.
“But, the UK has CGT exemptions for the main home, known as principal private residence (PPR) relief. From 6 April 2015, any residence owned by a UK or non-UK resident will only be capable of qualifying for PPR if it is located in a territory in which the individual is resident. In determining the residence status of an individual, new UK statutory residence test (SRT) rules will apply in the UK, which while helpful, are quite complicated. This sounds a lot worse than it actually is, because failing a test does not mean the whole gain becomes chargeable – it is only the proportion of gain relating to a non-qualifying period which is taxable.
“The final 18 months of your period of ownership always qualify for relief, regardless of how you use the property in that time, as long as the dwelling has been your only or main residence at some point.
“If the dwelling has not always been your only or main residence, or a period is not covered by an exemption, you’ll need to split the gain. When calculating the proportion of the gain eligible for relief, you divide the period of ownership between qualifying and non-qualifying periods.
“In your particular case, I would suggest the period of occupation from April 2015, until you leave the property to return to the UK will be a qualifying period. After that, it will depend on how long it takes you to sell the property – if it takes less than 18 months then the whole period of ownership will be exempt. If it takes longer than 18 months from leaving the Philippines to selling it, then the period over and above the 18 months will be a taxable proportion of gain.
“Obviously, this all hangs on a gain actually being made – no gain, and there is no tax liability. You will need to exchange the values of the property into sterling values at both acquisition and sale (using the exchange rates then, which you can get from the internet), as this will then factor in exchange rate gains or losses from a UK perspective.”
Jason Porter is the co-author of the book, ‘Retiring to Europe’, and its website retiringtoeurope.com, where a free download of the book is available.